Blockchain Blog 22: NFT — Non-Fungible Token
We covered the basics of NFTs in the following blog: Blockchain Blog 19: Metaverse and NFTs and tried to answer the following questions: How it is associated with Metaverse? and Why NFTs are valuable? We also looked at Types of NFTs. Today we will explore the key terms and concepts of NFT.
An NFT is a digital asset that represents real-world objects like art, music, in-game items, and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.
How do NFTs work?
NFTs exist on a blockchain and use the same technology as many of your
favorite cryptocurrencies. For the most part, NFTs exist mainly on the Ethereum blockchain but there are other blockchain networks that will soon offer the capability to support NFTs.
An NFT is created, or “minted” from digital objects that represent both tangible and intangible items, including:
• Videos and sports highlights
• Virtual avatars and video game skins
• Designer sneakers
Even tweets count. Twitter co-founder Jack Dorsey sold his first-ever tweet as an NFT for more than $2.9 million.
Essentially, NFTs are like physical collector’s items, only digital. So instead of getting an actual oil painting to hang on the wall, the buyer gets a digital file instead.
They also get exclusive ownership rights. That’s right: NFTs can have only one owner at a time. NFTs’ unique data makes it easy to verify their ownership and transfer tokens between owners. The owner or creator can also store specific information inside them. For instance, artists can sign their artwork by including their signature in an NFT’s metadata.
Main Features of NFT?
What Are NFTs Used For?
Blockchain technology and NFTs provide artists the ability to directly monetize their content. Artists and musicians do not have to rely on galleries and marketplaces to sell their creations. They can sell their content directly to consumers as NFTs without having to pay these 3rd party intermediaries. Content creators can also program in royalties so that whenever the NFT is resold, the creator receives a percentage of all sales. Once added, this feature cannot be altered as it is encoded into the asset itself. This is particularly interesting to many artists as many of them currently do not have future revenue after the initial sale of their content.
How to Buy NFTs
You’ll need to get a digital wallet that allows you to store NFTs and cryptocurrencies. You’ll likely need to purchase some cryptocurrency, like Ether, depending on what currencies your NFT provider accepts. You can buy crypto using any of the Crypto Exchange. You’ll then be able to move it from the exchange to your wallet of choice.
Issues with NFTs
There are copyright issues where creators are using other people’s names, ideas, and images to resell for their own profit. Examples can include the many Michael Jordan NFTs being sold without his approval and without him receiving any royalties from sales. There is a need for governing bodies such as the U.S. government and others to provide clarity and guidelines in the NFT field.
- Blue-chip NFT projects such as CryptoPunks, Bored Ape Yacht Club, and CyberKongz have great teams and communities behind them. These NFTs have some sort of utility and even reward holders, which results in passive income.
- CryptoPunks became so popular that individual images have been auctioned off at Christie’s and Sotheby’s.
- At first, everyone could get in. Let’s take Axie Infinity as an example. It was extremely popular in Southeast Asia because the cost of entry was close to nothing and you could make some money on the side with it, which was crucial for some during the pandemic.
- The future of NFTs goes beyond crypto art. Check the Blockchain Blog 19: Metaverse and NFTs
- The best-in-class NFTs are too expensive, creating opportunities for copycats to emerge.
- 99% of NFTs will go to zero because of this.
- The hype takes away common sense.
- The NFT market is not very liquid. There are more sellers than buyers, which results in silent crashes of more than 70% overnight.
- As seen with Bitcoin and Ethereum, crypto is extremely volatile, and it’s no different with NFTs.
- When there’s a way to make a quick buck, you are bound to have scams and pump-and-dumps. Evolved Apes is a prime example. After it got on Opensea, the head of the project vanished, taking 798 Ether (roughly $2.7 million) with him.
- Since this is such a new phenomenon, a lot of people will get hurt because of its fast-paced nature. Nobody really knows what’s going on, which projects are going to be successful and which are not. Regardless, money is pouring in left, right, and center.
Popular NFT Marketplaces
OpenSea.io: This peer-to-peer platform bills itself as a purveyor of “rare digital items and collectibles.” To get started, all you need to do is create an account to browse NFT collections. You can also sort pieces by sales volume to discover new artists.
Rarible: Similar to OpenSea, Rarible is a democratic, open marketplace that allows artists and creators to issue and sell NFTs. RARI tokens issued on the platform enable holders to weigh in on features like fees and community rules.
Foundation: Here, artists must receive “upvotes” or an invitation from fellow creators to post their art. The community’s exclusivity and cost of entry — artists must also purchase “gas” to mint NFTs — means it may boast higher-caliber artwork. For instance, Nyan Cat creator Chris Torres sold the NFT on the Foundation platform. It may also mean higher prices — not necessarily a bad thing for artists and collectors seeking to capitalize, assuming the demand for NFTs remains at current levels, or even increases over time.
Although these platforms and others are hosts to thousands of NFT creators and collectors, be sure you do your research carefully before buying. Some artists have fallen victim to impersonators who have listed and sold their work without their permission.
In addition, the verification processes for creators and NFT listings aren’t consistent across platforms — some are more stringent than others. OpenSea and Rarible, for example, do not require owner verification for NFT listings. Buyer protections appear to be sparse at best, so when shopping for NFTs, it may be best to keep the old adage “caveat emptor” (let the buyer beware) in mind.
Some Popular examples of NFTs
Zed Run Horses
While there are many forms of non-fungible tokens, one of the most
interesting use cases for this technology is in the realm of digital horse racing.
Zed Run is a digital horse racing platform where races take place 24 hours a
day, 7 days a week.
The “horses” on the Zed Run platform exist as NFTs where they function
solely as digital assets. Created by the Australian-based Virtually Human Studio, these NFT horses exist as ERC-721 tokens on the Ethereum blockchain. What makes digital horses different from many other kinds of NFTs is that each horse is considered a unique “breathing NFT”.
Each horse can breed with other horses to make new horses and has its own bloodline that can be traced on the blockchain. Every horse can race (their race history can be viewed in the blockchain) and has attributes that it can pass on to its offspring.
Axie Infinity has quickly become one of the most popular NFT ecosystems
and games in the DeFi space. It is the most popular Ethereum game in terms of active users. 250,000+ daily active players and 90,000+ ETH traded on their in-house marketplace. It is a Pokémon-inspired game where players battle each other, collect items, raise new “Axies“, and create their own kingdoms for their pets.
Axies are digital creatures created in an NFT format. Players can trade the tokens that hold the axies and aim to “collect them all”. There are many different kinds of axies available, and more than 500 different
kinds of body parts. Axies can battle with one another to win experience points used to level up the axie or evolve their body parts. Owners can also opt to breed axies to either keep themselves or sell on the Axie marketplace.
Just because you can buy NFTs, does that mean you should?
NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance. In other words, investing in NFTs is a largely personal decision. If you have money to spare, it may be worth considering, especially if a piece holds meaning for you.
But keep in mind, an NFT’s value is based entirely on what someone else is willing to pay for it. Therefore, demand will drive the price rather than fundamental, technical, or economic indicators, which typically influence stock prices and at least generally form the basis for investor demand.
All this means an NFT may resale for less than you paid for it. Or you may not be able to resell it at all if no one wants it. Approach NFTs just like you would any investment: Do your research, understand the risks — including that you might lose all of your investing dollars.
Read Next Part: Blockchain Blog 23: NFT | Metaverse — Market Opportunity
Entire Series: 28 Blogs on Blockchain and Cryptocurrency
- 10 Best Books on Crypto | 5 Best Crypto Bots in the UK
- Koinly Review | Binaryx Review | Hodlnaut vs CakeDefi
- MoonXBT vs Bybit vs Binance | Hardware Wallets
- Huobi Trading Bot | How to buy ADA | Geco.One Review
- Binance vs Bitstamp | Bitpanda vs Coinbase vs Coinsbit
- How to buy Ripple (XRP) | Best Crypto Exchanges in Africa
- Best Crypto Exchanges in Africa | Hoo Exchange Review
- eToro vs Robinhood | MoonXBT vs Bybit vs Bityard