Welcome, we believe in the quote, ‘Readers are THE Leaders’. On that note, Aspire SoftServ Pvt Ltd presents a new article on “NFT – An Introduction”, a trending NFT topic.
Table of Contents
Introduction
In the article, we will understand the basics of NFT, such as NFT, the difference between NFT and Cryptocurrencies, NFT Standards, the advantages and disadvantages of NFT, and what does the world’s business leaders and government think about NFT and many more.
Let’s start,
First, we will learn basic terminologies like fungible, cryptocurrency, token, and the difference between NFT and many more.
Terminologies
As per Merriam Webster, the definition of Fungible and Non-fungible is as below:
What is ‘Fungible’ word
Fungible means “being something (such as money or a commodity) of such a nature that another equal part or quantity may replace one part or quantity in paying a debt or settling an account.”
What is ‘non-Fungible’ word
Non-fungible means “a unique digital identifier that cannot be copied, replaced or subdivided that is recorded in a blockchain, and that is used to certify authenticity and ownership (as of a specific digital asset and specific rights relating to it).”
Difference between Fungible and Non-Fungible?
What is NFT
“NFT stands for Non-Fungible Token. ”
“NFT can be sold, bought, and associated with digital files.”
A Non-Fungible Token is a data unit stored on a digital ledger, most commonly known as blockchain technology. This structure certifies a digital asset as unique and not interchangeable (non-fungible).
NFT is a digital asset representing real-world objects like art, music, art, in-game items, and videos in Layman’s terms. It acts as the digital certificate of authenticity and has been exploding a lot these days. But this is not for every business and person.
Why are Non-Fungible Tokens Important?
The most obvious benefit that a Non-Fungible Token offers is market efficiency.
One key advantage is NFT cut out the middle-man. In the case of artworks, NFTs altogether remove the agents and connect artists to their audience. NFTs can value a player’s hours by collecting in-game items for video games.
NFTs ultimately prevent actors from tampering with a product’s originality or otherwise interrupting the process from the supply chain perspective.
How is an NFT different from a cryptocurrency?
NFTs and cryptocurrencies are very different, and both use Blockchain as a platform.
Cryptocurrency is a currency and is fungible, meaning that it is exchangeable or interchangeable.
But NFTs are non-fungible, which means every NFT is unique and the value of one NFT is not same to another NFT.
Types of NFTs
According to NFT enthusiastic community, NFTs can have a variety of use-cases as below:
- Digital Art: The most typical use, representing artistic creations and other collectables.
- Video Games and Virtual Worlds: The second most well-known use means assets available to players in-game.
- Music and Other Media: NFT can prevent piracy issue in the media sectors. For Example, a record or a movie can be tokenized as NFT.
- Supply Chain: To verify the original identity of a product.
NFT Real-Time Use cases
“NFT has many use-cases, and the only condition on their use is our imagination. “
The former Twitter CEO – Jack Dorsey’s tweet as NFT sold for $2.9 million – As per news
NFTs can also be used in different functions and purposes as below:
Digital Art
The most known use case in the NFT world is digital art, and we can use the technology to make a unique digital art item.
For Example, suppose you are an artist, you create a piece of art in Adobe Illustrator. You finish your work, and you are ready to put it on the market. How will you sell your digital art?
The problem with traditional online website has no system to counter people to duplicate digital files. Artist also aware that anyone can duplicate digital files.
For this reason, NFTs make it possible to create and promote artwork in the virtual world.
Virtual Reality (The Metaverse)
Virtual worlds (metaverses) have existed for some time but gained popularity in 2021. Most notably, the announcement of Facebook’s rebrands to Meta brought more significant interest in the metaverse concept.
The Metaverse is the future for many industries or sectors and will exit the current world. Virtual realities are divided into the land. Anyone can trade, buy, sell or land at any time, and the area specifies its value.
Finally, metaverses also perform as advertising areas for multiple companies. Think of billboards but in an online world where people have fun.
Gaming
Marketplaces and purchasing in an online game aren’t new ideas. Many games have a feature where you exchange money for in-game items.
The gaming company is centralized with a private server. Suppose any game user purchases any game accessories like skins. In that case, characters aren’t entirely under his control in the game, and a Game company has permission to take away from it at any time.
NFT (The new gaming model) suggests that players not only own what they purchase, but they can use them in multiple games (an initiative of NFT company Enjin).
For Example, if the game user could use a purchased hero from one game like ‘League of Legends’ outside of that game, say in other games like ‘World of Warcraft’ or somewhere else. That is the reason why NFT has created a trend in the gaming community.
Collectibles
If you are from 90’s kid, you might have a collection of Cards like Cartoons, a collection of video games and books and a long list, of course. We all have been collectors at some moment in our lives.
In NFT World, collectors are different from simple owners in the value that those people put into the item they hold.
Uniqueness in digital collectibles as an NFT, and you will showcase it social accounts, profiles anytime with confidence.
Domain Names
“Google had paid $12000 to one user who bought google domain for 1 minute”
As per CNBC news.
Nightmare right for Google that time, right? This is a just one of the many examples on the internet.
We all can agree on one point, Domain is known as THE first business brand and asset.
Another convincing use case for the NFTs is the domain names.
Right now, in 21st century, traditionally domain names are purchased from a centralized companies and must be maintained yearly. Even though their maintenance cost is low, it’s still a loss of money for most users.
What if I tell you that in the NFT world, you can purchase a domain name once that doesn’t need maintenance? Do you know why that is? It’s because you only control an NFT domain name, and no centralized entity can take it away from you.
The best thing about using a decentralized domain name is no centralized companies can remove, take it down or censor your domain.
Music and Movies
Piracy is the most significant challenge to the music and movies industries. Blockchain-based NFT can solve piracy problems.
Like art, musicians and filmmakers can attach their creations to NFTs and make a verifiable collectible. It could be the first edition of a release, a demo or some other unique item of value to an artist’s fans.
The main advantage here is that artists will not rely on a third party (e.g., a production studio or record players) to collect royalties, and they can do so automatically each time their creation changes hands.
Every music or movie will have a distinctive, untampered identity with no
piracy issue. Finally, we can say it will be a genuinely beneficial benefit
to every art and artist for full credit and ownership.
Supply Chains
Blockchain technology and NFTs can be reliable technical support with supply chains. The transparency and distinctiveness of an NFT guarantee the trustworthiness and genuineness of supply chain data.
So NFTs here can help track products when all the metadata is stored inside a blockchain, from its origin to the end customer. Many businesses such as Amazon have already started adopting this technology for their products.
Identity Management (IM)
NFTs can be an essential feature of our culture for personal identity management. As you already know, NFTs are unique. So are our identities. By incorporating them into a single token, we can verify our identity to Anyone.
For Example, suppose your college degree is certified in the form of an NFT, and it’s digitally stored, unable to alter and always can be traced back to you.
Which Blockchain Platforms support NFTs?
Ethereum
Ethereum was the first Blockchain to support NFTs with its ERC-721 standard. And then after, Solana is the new trend name.
In the decentralized ecosystem, a Layer-1 network refers to a blockchain. At the same time, a Layer-2 protocol is a third-party integration that can use in along with a Layer-1 blockchain.
For instance: Bitcoin is a Layer-1 network, and the Lightning Network is a Layer-2 solution built to enhance transaction speeds on the Bitcoin network
Ethereum currently has the higher transaction fees (known as gas fees) than Solana.
Many projects are linked, like Terra Virtua, Enjin, Decentraland, and Axie Infinity from Bored Ape’s Metaverse ecosystem and artistic projects.
What is ERC-721
ERC-721 was the first standard for representing non-fungible digital assets on the Ethereum blockchain.
ERC-721 is an inheritable Solidity Smart contract standard. Developers can create new ERC-721-compliant contracts by replicating from a reference implementation.
ERC-721 provides core methods that authorise tracking the owner of a unique identifier and a permissioned way to transfer the asset to others.
What is ERC-1155
ERC-1155 is a token standard mainly used for NFTs (non-fungible tokens).
The ERC-1155 standard offers “semi-fungibility” and provides an analogue to ERC-721 functionality (meaning that an ERC-721 asset could be built using ERC-1155). The assets under the same class are interchangeable, and the user can transfer any amount of assets to others.
Solana:
- Solana has the edge over Ethereum. The Solana blockchain has an advantage of lower transaction fee (TX fee) over other platforms.
- Solana is a computing platform that can interact with smart contracts. Smart contracts power a wide range of applications, from NFT markets and DeFi to games and decentralized lotteries.
- Some of Solana-based metaverse projects based on virtual gaming sector are completed and in-progress which includes Star Atlas, Cryowar, Solice, Afflarium, Portals, Space Falcon, Nyan Heroes, and Solmoon.
Cardano:
- Cardano introduced native tokens that enable the creation of NFTs without smart contracts with its March 2021 update. Cardano NFT marketplaces include CNFT and Theos.
- The Cardano blockchain is the first solution to introduce a different narrative for NFTs called native tokens. A native token has all the benefits and safety of the Cardano blockchain. The native token’s function enables the transacting of multi-assets on Cardano.
- This feature offers distinctive advantages, as there is no need to create smart contracts to handle custom tokens.
Others:
- Bitcoin Cash – Bitcoin Cash supports NFTs and powers the Jungle NFT marketplace.
- Flow – The Flow blockchain, which uses a proof of stake consensus model, supports NFTs. CryptoKitties plans to switch from Ethereum to Flow in the future.
- GoChain – GoChain, a blockchain that bills itself as ‘eco-friendly’, powers the Zeromint NFT marketplace and the VeVe app.
- Polygon – Formerly known as the Matic Network, it is a proof-of-stake blockchain supported by major NFT marketplaces such as OpenSea.
- Tezos – Tezos is a blockchain network that operates on a proof of stake and supports the sale of NFT art.
What are NFT Advantages
NFT is a debatable topic, and some people think it is a revolutionary while others consider it as a Scam/Ponzi scheme. Below are the few pros and cons of NFT.
- Value Growth
When you buy NFT tokens, it also has potential growth in your investment’s value as other investments.
For example: CryptoPunk #3100 first sold for $2,127 on July 6, 2017. The collector who owned the artwork refused to sell until March 2021. Still, that collector is probably doing backflips considering the more than $7.5 million return on investment they earned when they sold.
- Ownership of Something Unique
These digital collectibles are non-fungible, which means they are irreplaceable. There is a good feeling when you know you own a one-of-a-kind piece, whether it be a painting, furniture, a digital image, an audio clip, or other digital assets.
- Excitement
There’s a ton of excitement centred around blockchain technology at the moment. Some believe the technology could lead to as significant a shift in consumer behaviour as the invention of the Internet did.
- Data Record
Records of authenticity and chain-of-ownership for valuable artwork is sometimes tough to maintain. Existing on the Blockchain allows clear ownership records of all NFTs, meaning your digital artwork should theoretically never be subject to theft or having its authenticity questioned.
The technology will be a better way to manage and control sensitive data and records of digital collectibles.
What are the NFT Disadvantages
NFTs are fascinating, and there is no doubt about it. But there are some severe drawbacks to sinking your money into them. Some of the most significant disadvantages include:
- Physical Art Can’t Be Digitized
The reasons to own physical art and own digital art are often different. You cannot digitize physical art. There is an allure to seeing a one-of-a-kind painting with your own eyes that these tokens cannot provide.
- Uncertain Value
NFTs as an asset has no standard benchmark for pricing fluctuation. When you purchase one of these non-fungibles, you are not necessarily purchasing the copyright to the art.
When you buy these assets, all you own is a record saying you own the token behind the original purchase. The real question here is, “How much value is there in owning an asset you don’t control?”
Collectors who invested all that scratch into these tokens may be left holding a digital record that’s not worth much in the future.
- Environmental Cost
The environment is a hot topic of debate as of late. Any record entered into the Ethereum blockchain takes significant computing, which requires substantial amounts of energy.
So, widespread trading in NFTs and other blockchain-based assets isn’t necessarily an environmentally friendly process.
As Cambridge University study suggests, everything having to do with the Blockchain is highly unsustainable from an environmental standpoint because of the amount of energy used.
- Security
Wrong-minded people may misuse NFT. Recently, Opensea had faced a severe hacking issue, which may question the NFT platform’s responsibility towards the member.
Recent, as per news, Hackers Stole $1.7 Million Worth of NFTs from Users of OpenSea Marketplace.
- Pyramid/Ponzi scheme claims
“If you don’t know what you’re buying, don’t spend even 1$”.
Same as some random jpg image has million dollars cost, but that piece of NFT has no fundamental value.
Let’s see walkthrough histories of financial bubbles 😀
Everyone buys crypto and NFT, but no one know how it works. If you observe history of any financial bubble, one common thing – FOMO (Fear of Missing Out).
Many countries/governments/leaders considered NFT as SCAM/TULIP BUBBLE, DOT COM BUBBLE/PONZI SCHEME and many.
The format of the NFT market is similar to a pyramid or Ponzi scheme, where early adopters gain profit at the expense of those buying in later.
Financial theorist William J. Bernstein compared the NFT market to 17th-century Tulip Mania, saying that any speculative bubble requires a technological advance for people to “get enthusiastic about”, with part of that enthusiasm coming from the extreme predictions being made about the product.
Future of NFT
It is just a matter of time before questioning the relevancy of NFTs will no longer be a discussion. Significant companies know this and are building within this space:
- Twitter is integrating NFTs
- Facebook is taking part in building a metaverse, and Facebook is now Meta.
- Nike is creating NFT verification on shoes
- Coinbase is building an NFT marketplace
- Warner Bros. already released Space Jam NFTs and wants to release music NFTs
NFT and Metaverse
What is Metaverses
Metaverses are virtual worlds where essentially the Internet is brought to life.
There is an abundant possibility within metaverse worlds, where you get to design your life, interact with real people in virtual communities, design your avatar, work, play.
Also, explore new worlds by using virtual reality headsets, augmented reality glasses, smartphone apps or other devices, including virtual touch.
How NFT and Metaverse will connect?
NFTs will be an essential part of metaverses and serve as the building blocks for assets that can utilize across all these worlds.
As you build your virtual home, your walls will have original NFT art and “prints” of duplicated digital art that you bought from collectors. You invite your friends over to your immersive digital home to listen to your NFT music and view your NFT art – which now represents not just a creator’s unique work but also the art piece’s history and the story of how you came to own it. Your friends arrive instantly and many more.
In future, you may find companies in metaverse, Let’s see we may be available in Metaverse. 😊
Conclusion
What will be the impact if you are verified and have a blue tick on your social profile? The same applies to the NFT trend.
The future is bright for NFTs, but it will take time for the world to accept this new way of paying for things. However, it is only a matter of time before the financial industry adopts this revolutionary technology.
Let us conclude; we learned some vital facts about NFTs. You now have the knowledge and tools to begin using NFTs in your life today. We also went through advantages, disadvantages, and use cases.
We believe every technology comes with pros and cons; we must learn how we can make it secure, environment-friendly, cost-effective, and useful to humankind.
