What is NFT ? Characteristics and use cases explained !
NFT, you must have heard of it. Whether it is the art, gaming or collectibles market, the NFT phenomenon has never ceased to amaze us with its records. Better still, it reinvents the notion of digital property and beyond.
So what is an NFT? How to understand and benefit from this new technology which is only in its infancy?
Are the revolutions we are experiencing right now only due to the speculative bubble surrounding cryptocurrencies?
Discover in this article, our first answers!
1. What is an NFT?
NFT is the abbreviation for Non-Fungible Token. To get things clear, let’s start by understanding the 2 principles notions:
What is a token?
”In the Blockchain ecosystem, any asset that is digitally transferable between two people is called a token” (Source: coinhouse.com)
These tokens are issued on a blockchain, most often on Ethereum. Depending on the properties attributed to them, they have a different classification and uses.
What is fungibility?
Fungibility means that the individual units of an asset are interchangeable and essentially indistinguishable from one another.
A currency is a classic example of a fungible asset. $50 is always $50, regardless of the serial number of the fifty dollar banknote in question.
On the contrary, a work of art is a so-called non-fungible asset. A Picasso painting is not the same as a Van Gogh painting, they are two totally different, discernible works that cannot be interchanged.
So what is an NFT or non-fungible token?
These NFTs are therefore unique tokens and in limited quantities.
This means that if you take 2 NFTs, these two digital objects will be significantly different, and you will be able to prove it with the blockchain. In short: it is a unique “token” backed by a network of cryptocurrencies.
Its owner is therefore certain to be the sole owner.
Finally, what is the difference between an NFT and a cryptocurrency?
As explained earlier, currencies are fungible, just like cryptocurrencies. And it is this property that makes all the difference.
As explained in the diagram below, holding a bitcoin or another bitcoin is equivalent. However, holding a single Token A is not the same as holding a single Token B.
Here some examples of NFT assets that you buy and sell on OpenSea platform:
As you see here, even if you didn’t make or create the caricature or the domain name, you can buy it from the owner/creator and own that piece! And you can use that piece of art or domain or any another form of asset any way you want.
2. What are the characteristics of an NFT ?
As stated previously, each NFT is unique. This uniqueness is defined by 4 main characteristics:
- The sole creator
When the NFT is created, the creator will come and “sign” it. Indeed, by interacting with a “smart contract” (contract on a blockchain) the creator will initiate an event on a blockchain, which will allow time stamping and creating the NFT in an unalterable way.
To give you a more meaningful image of this signature via the blockchain, you can think of it as the equivalent of a painter’s signature on a canvas. This signature allows you to distinguish the original from the copies.
- The unalterable identifier
The equivalent of the NFT’s identity card number is its identifier. It is this sequence of numbers or letters, unmodifiable and unalterable, that will identify an NFT on a blockchain.
To draw a parallel with the physical world, this corresponds to a unique serial number.
- Its content
Identifier and content of the NFT are two distinct elements. The identifier is defined at creation and is unalterable, which is what will be certain of the “identity” of the NFT. The content is also defined during creation but it can be totally or partially modified.
On the content side, the formats are diverse: it can be an image, a video, a document or other.
In most cases, the content of the NFT will not be editable.
However, in some cases, a change in content may be made. The owner can indeed qualify it and enter information “on the NFT” within the blockchain. For example, I can hold an NFT corresponding to a physical object and qualify the content of my NFT with its current state according to its wear.
Thus, what makes the value of an NFT is not its content, but its unique and unalterable identifier.
- The current owner
The current owner is the last characteristic of the NFT that will be used to define it. Indeed, the last owner of the NFT will be known through the transfer between two blockchain wallets. It is thus possible to know all the owners in chronological order by using time-stamped blockchain transfers.
From this transfer of ownership derives certain rights but also certain obligations as well.
3. What are the main use cases of NFT ?
Collectibles
Collectibles are currently one of the most popular applications for NFTs in terms of sales volume, with around 23.6% of last month’s sales coming from collectibles projects.
This category continues to grow and expand as NFT technology is harnessed to create symbolic versions of star athletes and celebrities for fans to collect.
Gaming
Players are the ideal target market for NFTs as they are already familiar with the concept of virtual worlds and currencies. NFTs are booming in the gaming industry as they allow game elements to be discarded and easily transferred or traded with trading and peer-to-peer markets.
This is quite different from traditional games which prohibit the sale or transfer of in-game items like rare weapons and skins. NFTs also make the gaming experience more tangible and rewarding, as players have real ownership of their digital assets. They are also creating a new economy, as players now have the potential to make money by building and expanding their in-game assets.
The crux of blockchain’s potential here is the theory that player loyalty will increase when they have more skin in the game: when their digital assets can be transferred between games or platforms, or traded on open markets, they will invest more of their hard-earned cash. Leaving digital items on the table as they walk away from a game is antithetical to creating investment in time or money, or so the theory goes. (Source: cointelegraph.com)
Art
One of the biggest challenges for digital artists is to protect their creations from copyright infringement, but NFTs are the best solution because they provide proof of ownership, authenticity, and eliminate issues of counterfeiting, copyright infringement and fraud.
A CoinDesk article notes that many artists have turned to NFTs and online showrooms as museums and galleries are forced to close in the face of COVID-19, and “Just as Bitcoin paved the way for peer-to-peer transactions without trust by creating a shared ledger of events, crypto art […] has a built-in provenance. ”
Licenses and Certifications
NFT use cases can also provide significant benefits for licensing and certification verification. Course completion certificates, like any other diploma or license, are typically offered to successful applicants in digital or paper form. Universities and employers require replicas of the course completion document as references before offering a position to someone in a company or institute.
Administrators could save a lot of time by accessing these licenses with the functionality of NFTs. Certificates and licenses in the form of NFTs remove the burden of checking and verifying records. Subsequently, the approach also offers an easier approach to store evidence of course or license completion.
In summary, what to remember from an NFT ?
NFT is simply a single token, operating on a blockchain. Four main characteristics define it: its unique creator, its unalterable identifier, its content and the current owner.
This “digital uniqueness” and its properties have appealed to different fields such as video games, colectibles, digital identity, licenses, certificates and arts.
We believe that the crypto NFT will continue to grow strongly in the years to come. Easier to store, immutable and more profitable for artists, this market will quickly exceed several billion dollars.
