NFTs: The Absolute Basics
NFT (Non-fungible token) is a buzzword that has been around since 2014, believe it or not. This technology, however, exploded in 2021 and is rapidly expanding. But what exactly are NFTs and why are they relevant?
What is an NFT?
Non-fungible goods
NFT stands for non-fungible token. What does that mean? One can think of dollar bills, individual stocks or cryptocurrency as fungible goods. This means that these items individually fulfil the same purpose, provided we have the right quantity. Non-fungible goods, on the other hand, can have different values based on their defining parameters. They are unique and as such cannot be swapped without one party losing value. This is in contrast to swapping one bitcoin for another — where no value is exchanged between parties.
Non-fungible goods include fruit at a grocery store or concert tickets. Think of how you select bananas based on their ripeness/amount of bruising and how seats closer to the stage have more value than those further back, yet they are both tickets to the same concert. Swapping your apple for your friend’s apple can result in you having an apple that is more/less ripe for example.
Non-fungible goods are, therefore, more difficult to track due to the defining parameters that dictate their value. NFTs are the solution to a reliable, transparent and automated system to group, organise and track non-fungible goods around us.
What do NFTs represent?
NFTs are unique identifiers for non-fungible goods that are secured and stored on the public blockchain — mainly on Ethereum. These tokens, as explained above, are not interchangeable and cannot be sub-divided. The huge advantage of NFTs is that their representation is completely determined by their developers. To that end, an NFT can represent ownership of a piece of art, or music or it can allow limited access to a bar in a specific city — the potential for different use cases is huge.
NFTs give true ownership to the users via the control of locally stored private keys. When you own an NFT, you can verify it to ANYONE IN THE WORLD by signing a transaction with your private key and no third party can take that away from you. This is incredibly powerful.
How do NFTs work?
NFTs are cryptographically secure digital records that verify your ownership of access to non-fungible goods (this could be anything). Think about how your car title verifies your ownership of your car. The beauty and security of NFTs lies in the fact that they are secured on a public blockchain (like Ethereum). This implies that there is a decentralized network of smart contracts and validators which allow you to validate your ownership of your non-fungible item — with your private key.
Most popular uses of NFTs today
The exploration of the utility of NFTs has just begun. To date, there have been three NFT categories that represent the majority of NFT activity. These include 1) visual art, 2) profile-pic-projects and 3) gaming.
Visual art
Historically, digital artists have found it difficult to generate income on Web2. Artists would have to utilise the internet to build a name for themselves, generate freelance work and outsource their time. NFTs offer digital artists the opportunity to mint authentic scarce works of art and sell them to consumers with certificates of ownership and authenticity in the form of NFTs.
Profile-pic-projects
These represent another form of visual NFTs that is comprised of a set number of digital characters with a variety of traits. Examples of these include Cryptopunks and Bored Ape Yacht Club. These projects are involved in brand development, whereby users can purchase a unique profile pic identifier for the brand. These contribute to users’ digital identity and allow them to belong to an online community.
NFTs in gaming
In-game NFTs allow players to obtain true ownership of their in-game items. This means that gamers can, with the help of NFTs and blockchain, convert their in-game accomplishments into real money. This also allows developers to grow their gaming ecosystems beyond what has been seen historically. The leading play-to-earn game is Axie Infinity where gamers can earn in-game NFTs that can be sold for cash.
Other potential practical uses of NFTs
Among the current most popular uses of NFTs, other potential use cases include:
- Medical records and identity verification
- Intelligent property and patents
- Academic credentials
- Ticketing
- Voting
As shown by the list above, the use cases of NFTs stretch far beyond the current most popular cases. Furthermore, this list indicates that this technology can span a variety of industries and has the potential to improve the lives of lots of people.
Conclusion
NFTs are a technology that facilitates the authentication of ownership of a specific item. These items can be almost anything from digital artwork to game achievements. They work by cryptographically allowing authentication on the public blockchain with the use of a private key. The benefit of this technology is that it decentralizes sources of ownership verification and has the potential to provide people with extended utility. They are a new and exciting technology and have the capacity to find their way into a large proportion of our society and improve the lives of many people.
