What are NFTs and Why are They Becoming Popular?
Written by: Sheetal Jaitly, CEO, TribalScale
Before describing what a non-fungible token (NFT) is, let’s start with “fungibility.” It’s the ability of an asset to be exchanged with another similar asset without compromising its value. The fungibility of an asset defines the characteristics of the asset — like divisibility and value. To give a simple example: $100 dollar has the same value as another $100 bill. When someone lends you a $100 bill, you don’t necessarily have to refund them with the exact same note, as another note with the same value is worth the same amount. That’s obvious, but now we’re on the same page.
In the world of cryptocurrency, a BTC (Bitcoin) carries the same value as another BTC. Nevertheless, everything changes when we change our focus to Non-Fungible Tokens (NFT) — a non-fungible token comes with a distinct value from another equal or similar NFT. An individual NFT has unique characteristics that dictate its peculiarity; hence the name “non-fungibles”. They are much similar to rare and precious stones, works of art, and luxury things in general.
NFTs: Breaking into the world of Crypto
NFT’s are becoming a focus in global crypto attention. An NFT is a special kind of cryptographic token that represents a particular thing — something unique implying that an NFT isn’t mutually interchangeable by their particular specification in the manner that various crypto things like Monero works. Their value remains constant and can be traded with one another. NFTs can be applied in the creation of verifiable digital scarcity. They’re particularly vital for all applications that need specific digital assets like digital art, digital collectibles, and in-game assets. NFT’s aren’t new in the digital world; the first NFT-like token was launched back in 2012 when colored coins, also referred to as Bitcoin 2.X, was introduced and which was to be created atop of a Bitcoin network. Today, the most common example of an NFT-like token is ERC721 which is operating on an Ethereum network. Enjin later developed another type of NFT known as ERC 1155 operating on the same Ethereum network — developed as an advanced standard for the definition of video game tokens.
Keep in mind that one NFT is unique from another, that is, an NFT isn’t equal to any other either in terms of a property or value. Each particular NFT is awarded a digital hash distinguishing it from other NFTs of its type. This distinguishing feature allows an NFT to serve as evidence of provenance. Today, the ownership, as well as the authenticity of one’s intellectual property like original artworks, is much valued. When it comes to the world of collectibles and gaming, we refer to NFTs as digital collectibles. NFTs have common characteristics like rareness, indivisible, and uniqueness:
- Rareness: their value is much attributed to their scarcity. Although the developers of NFTs can develop any amount of these tokens, they usually limit them to boost rarity;
- Uniqueness: perhaps the most valuable feature of NFTs so far. NFTs come with a permanent information tab marking their uniqueness. This can be thought of as their certificate of authenticity;
- Indivisible: although NFTs aren’t set in stone, these items cannot be divided into smaller units. You are only allowed to buy the whole amount of, let’s say a piece of digital art, or not buy the art at all.
NFT Notable Advantages
NFTs have notable advantages such as being non-transferable, authentic and having preservation for ownership rights. Being transferable implies that unlike the exchanged-traded fungible tokens, non-fungible tokens are purchased and sold on specific marketplaces. In this case, their value is dictated by their uniqueness. NFTs are powered by Blockchain technology, hence, you are confident that an NFT is always genuine, and is almost impossible to build counterfeits meaning that NFT is authentic. Lastly, NFTs are renowned to preserve ownership rights. Their application of decentralized platforms where the owner cannot modify/alter/compromise the data once it has been committed.
NFT Case Studies
Over the last 30 days, we have had over $100 million in crypto collectible (NFTs) being sold. Some of the best players in the industry include NBA Top Shot which leads the chart, Hashmasks, CryptoPunks, Sorare, Art Blocks, Axie Infinity, Bitcoin Origins, CryptoKitties, and Allen Worlds. Their performance is shown in the chart below.
Non-fungible tokens aren’t new in the world of gaming as they are renowned for solving inherent problems. Popular games like Fortnite forbid the sale of rare characteristics and accessories like skins and weapons. Nevertheless, with non-fungible tokens, these traits can be transferred with much ease and used in various games. Consequently, NFTs can help in driving in-game economies.
b. Digital assets
Take Decentraland as an example where participants can purchase virtual land. Ethereum Name Service (ENS) is another example that resembles a home that applies non-fungible tokens for its ETH domain to assist in purchasing and selling.
Non-fungible tokens are ideal for combating identity theft. Medical records, academic documents, persons’ appearance are some of the things that are easily digitized to represent one’s identity. Moreover, digital artists can convert their job into non-fungible tokens for copyright purposes. The application of NFT to assist in proving the identity including transforming physical game tickets into NFTs to help wipe out counterfeits.
NFTs are bringing a new dawn to the world of collectibles. As a result, traditional collectibles are now adopting digital assets.
Why NFTs trending?
Out of the many factors that have brought non-fungible tokens to the limelight, two major parameters have notably played a very important role. They are NFT art and CryptoKitties.
There is an enormous application of NFTs in the creation of NFT art. Nevertheless, the NFT niche is gaining immense traction as more artists are buying from NFT marketplaces. According to CryptoArt — an analytic platform that focuses on cryptocurrency — the total amount of NFT-powered artworks is over $8.2 million. Research shows that at present the entire market for collectible exceeds $130 billion. The growth in the market value implies that people have shifted to perceiving collectibles as a huge financial entity rather than just a hobby. The founder of CryptoArt, Richard Chen credited the growth in the trading volume to an increased understanding of the potential of NFTs in maintaining authenticity. For example, during the last half of 2020, digital artwork artists were having the best business deals from the sale of their products. In a particular example, in September 2020, changing an NFT digital artwork along with the price of Bitcoin fetched up to 262 ETH which was equivalent to $101,100 during that period. In another example, in October 2020, an NFT artwork designer traded their piece at $131,250 and which was the highest price an NFT was ever sold. Better days were yet to come for these NFT artists because, after two months, a set of NFT art hit $777,777.78.
CryptoKitties is a renowned game found on an ETH-based decentralized protocol that allows the collecting, buying, selling, as well as breeding of virtual cats. The game, which is essentially a version of Blockchain of the 1990’s cult classic Tamagotchi and since its much-hyped release back in 2017, has retained its position of acting as a non-fungible token bastion. Notably, this game was the initial mainstream application on the second-largest blockchain focusing on leisure. Additionally, CryptoKitties opened the window to reach Decentralized applications (DApps) meant for recreational purposes. Once it was launched, this game brought enormous hype to the Ethereum platform turning into a chorus of boos because the popularity of DApps was clogging the network, slagging transaction confirmations, and raising fees. For lovers of cats and wondering how to purchase CryptoKitties, it’s just simple. They must have firefox or a chrome browser on their computers, a MetaMask wallet, and of course some ETH coils. What follows is accessing the marketplace for the Kitties, choosing which one you like, paying for it, and it all becomes yours! The developer of CryptoKitties, Dapper Labs, recently followed their success with the likes of NBA TopShot, which is a marketplace for digital collectibles for the fans of NBAs.
Adoption of NFTs collectibles in the music industry
Today, NFTs collectibles are invading the world of music. For instance, Canadian DJ Deadmau5 is welcoming the use of NFTs collectibles by partnering with Worldwide Asset Exchange (WAX) to release a blockchain drop. A chain of NFTs fielded on the WAX blockchain will be paraded for buying in a couple of days. This shows that the music industry is anticipating a great change where rare collectibles will be shifted from mere physical assets to digital items. In the future, we might see event organizers and sponsors handing out rare Fortnite skins to people attending concerts. The NFTs proposed by Deadmau5 would operate like virtual stickers where fans can collect and trade amongst themselves, just like baseball cards.
Sheetal is a passionate advocate for Digital Transformation and Global Innovation. He’s led multiple digital transformation initiatives with companies spanning all different industries, including entire re-designs and creations of digital user platforms. Besides being an avid investor and supporter of digital technology companies, Sheetal is a board member of Feed Ontario, a member of Tech4SickKids Council, DMZ, and TechStars Mentor.
TribalScale is a global innovation firm that helps enterprises adapt and thrive in the digital era. We transform teams and processes, build best-in-class digital products, and create disruptive startups. Learn more about us on our website. Connect with us on Twitter, LinkedIn & Facebook!