Non-fungible tokens are a cryptographic asset based on blockchain technology. Their existence is easily confirmed with a unique blockchain transaction id, and their unalterable record generally includes links to unique media and/or metadata stored on the Interplanetary File System (IPFS). For these reasons, they are not easily exchanged 1:1 like their cryptocurrency cousins, such as Bitcoin, where the entire supply is identical.
Physical items are already being “tokenized” all over the world, functioning as certificates of authenticity for real objects such as artwork, collectibles, and even real estate. Peoples identities, property rights, and other aspects of life may all be represented by NFTs in the future. The distinct structure of each NFT enables a wide range of applications.
A substantial amount of current NFT market consists of collectibles such as artwork, trading cards, rarities and memorabilia. The most notable for sports fans would be the likes of NBA Top Shot, which allows the consumer to accumulate tokenized NBA “moments” and player trading cards in the form of digital assets.
At auction, some of these assets have sold for millions of dollars. For example, Jack Dorsey, the founder of Twitter, recently published a tokenized version of the very first tweet, “just putting up my twttr”. The NFT replica of the original tweet sold for $2.5 million! Another example would be the famous Beeple art piece, which sold at auction for $69 million. For many people, this was their introduction to the world of NFTs.
IN DEPTH UNDERSTANDING OF NFTs
Cryptocurrencies can be likened to physical money, which is fungible – meaning the user can exchange and replace the product. For example, one Bitcoin will always be the same value as another Bitcoin, and one Dogecoin is the same as another Dogecoin. Because they are convertible, cryptocurrencies are suitable for use as a secure method of exchange in the digital economy.
Non-fungible tokens, however, redefine the paradigm by making each token unique and irreplaceable, making it impossible to produce two identical NFTs. Instead, they could be compared to a digital passport, or certificate of authenticity, since each token has its own unique identifiers that distinguishes it from others. They’re also extensible, combining two NFTs to create a third, unique NFT.
Like Bitcoin, NFTs provide ownership data that makes identifying and transferring tokens between holders easier and transparent. Owners can also include information or qualities about these assets. For example, coffee beans can be represented with Fairtrade tokens.
NFTs were created as a result of the ERC-721 standard. It offers the bare minimum interface for the exchange and distribution of gaming tokens, including ownership information, security and metadata. It was built by the some of the same team that created the ERC-20 smart contract. ERC stands for “Ethereum request for comment” and was implemented in 2015.
The ERC-1155 standard improves this concept by decreasing NFT transactions and storage costs and combining several types of NFTs into a single agreement. It helps creators regulate their tokens with the increase of popularity and demand for NFTs.
One of the most popular uses of NFTs would be the blockchain-based game, CryptoKitties, designed by the Canadian studio, Dapper Labs. Released in 2017 and utilizing the Ethereum blockchain, these CryptoKitties are digital representations of cats that users can collect, breed and sell. Each kitten is one-of-a-kind and is fully owned by the consumer, and has a monetary value in the form of Ether. They reproduce amongst themselves, creating new offspring with features and values separate from their parents. CryptoKitties is one of the earliest attempts of utilizing blockchain technology for recreation purposes. CryptoKitties has attracted a fanbase that has spent approximately $20 million in Ether to purchase, feed and care for these digital pets only weeks after its inception. Some devout consumers have spent upwards of $100,000 on the project.
Lately, some controversy has arisen due to projects such as the Bored Ape Yacht Club, due to their exorbitant rates, celebrity clientele and even high-profile thefts, worth of about $2.2 million, of some of their 10,000 NFTs. Recently, OpenSea, one of the worlds largest NFT marketplaces, had fallen victim to a phishing attack, in which over 30 users lost their NFT collections valued at approximately $1.7 million.
The security of these valuable assets is always of the utmost priority. To keep NFTs secure, the owner should opt for a non-custodial wallet which gives users sole control of private keys and their cryptocurrencies. This also proves the assets are owned by the one who controls the wallet, whereas custodial wallets are controlled by another party with access to their private keys.
Another way to secure digital assets is a cold storage wallet. With this, the wallet is stored on a platform that is not always connected to the internet. It’s a physical device, resembling a USB drive, that stores cryptocurrencies and other digital assets, keeping them safe from online attacks.
The world of NFT trading is still only in its infancy, as we continue to push forward technologically. With the rise of the Metaverse and the much anticipated Neuralink, digital assets will soon become commonplace, and the demand for such things will grow exponentially. With a trading volume reaching $25 billion in 2021, we can safely assume this trend to continue upwards as we progress to future.