What is an NFT?
NFTs, or non-fungible tokens, are a form of digital asset. Like cryptocurrencies, the ownership of these assets is recorded on a blockchain, a digital ledger of transactions documented through a network of computers unified through a network of peers.
NFTs differ from cryptocurrencies in that they are not fungible, that is, they are not mutually exchangeable. While all the coins of a cryptocurrency have the same value, NFTs have characteristics that make them unique and, therefore, non-exchangeable.
Proponents of NFTs claim that documented ownership on a blockchain avoids replication and hacking issues, putting them somewhere between a physical asset and a digital file. An NFT can be anything that can be stored as a file, such as music, art, tweets, and collectible assets that form the basis of online gaming.
Who created the first NFT?
In 2012, even before the Ethereum cryptocurrency came to light, the mathematician and current president of the Israeli Bitcoin Association, Meni Rosenfeld, developed the concept of “colored coins”; an idea that seeks to represent real-world assets using a digital ledger. Two years later, in 2014, digital artist Kevin McCoy coined the first NFT. The ownership certificate for this digital image, known as “Quantum”, was launched on the Namecoin blockchain.
While at the time, the initial creation of NFTs seemed insignificant to some parties, many of these digital assets have provided enormous economic benefits to their creators. In 2021, digital artist Beeple sold his collage titled “Everyday: The First 5000 Days” for an unprecedented $69 million.
OpenSea: where NFTs are sold
People who are interested in these digital assets can buy NFTs in a wide variety of markets. However, OpenSea emerged as the first commercial NFT marketplace development platform, and remains the largest today. This website offers a place for users to discover, collect and sell NFTs belonging to a long list of categories; such as art, collectibles, domain names, music, photography, sports, and trading cards.
The value of NFTs
NFTs have value to both creators and collectors. Like cryptocurrencies, they offer advantages that tangible assets do not. The ability to register the ownership certificate on blockchains, which are nearly impossible to hack and tamper with, provides a great safety net. Additionally, the decentralized nature of these exchanges offers unprecedented flexibility when it comes to trading assets.
- 🎨 For artists
What do the sale of a music album, a piece of digital art and even a house have in common? Third parties seeking to earn money. In the analog world, record companies, art dealers and real estate agents make a lot of money by facilitating the sale and purchase of goods. The decentralized nature of digital asset trading allows artists and sellers to avoid middlemen and the fees (or commissions) they often demand in exchange for their services. NFTs also allow artists to mint a certain amount of their product, which leads to low supply, high demand, and a rationing economy that results in increased profits.
- 🖼️ For collectors
Detractors of this system criticize the intangible nature of NFTs, arguing that digital assets cannot be compared to goods that can be physically touched and, for example, hung on a shelf. Well, tell that to Beeple. The NFT marketplace development company speaks for itself.
The rise of cryptocurrencies has clearly shown that people value digital assets, in part because of the technology that makes these tokens secure, finite (in most cases), and easy to send and receive. And the same can be said for NFTs, although these assets offer something more for the collector. Blockchain-based ownership and limited supply make owning the NFT of an album, photo, or trading card much more valuable than physical and non-blockchain-based copies.
- 👔 For companies
NFTs have changed the market for digital assets. New markets are emerging in terrain created by the establishment of NFTs, and companies are trying to get involved in them at this relatively early stage. NFTs not only certify ownership of the digital asset, but are also proof of attendance, meaning they have the potential to be used at live events, such as festivals. Furthermore, smart contracts written in NFTs ensure that creators receive part of the profits if and when they are transferred to third parties.
NFT: How are they useful?
NFTs have different functions. Cryptocurrencies have already proven that digital assets are not only useful, but also incredibly valuable (albeit somewhat volatile). To better understand how NFTs are useful or viable in the modern world, take a look at some of the most promising NFT markets below.
1. Graphic art
Art remains one of the most valuable NFT markets. It is true that an NFT cannot be hung like a physical painting, but it will look just as extraordinary when projected on a wall. Additionally, NFT art cannot be stolen, lost, or damaged. Right now, the most valuable NFT artworks range from basic but expensive illustrations of monkeys and cyberpunks, to fine art and impressive digital masterpieces.
2. GIFs
GIFs (graphics interchange format) are bitmap images used as logos and to display graphics. GIFs are also widely used in online communication as a kind of living meme. Converting GIFs to NFTs offers a promising revenue stream for graphic designers, and a secure form of exchange for companies that want to own and have exclusive rights to these digital products.
3. Videos and sports moments
Major sporting moment NFTs are becoming a gigantic NFT marketplace development. The NBA recently created a Top Shot product (a blockchain trading card system based on new angles of NBA highlights and digital art). To date, a LeBron James highlight has sold for over $200,000. This sector is bound to expand as other sports organizations gain access to it.
4. Collectibles
Collectibles and NFTs complement each other perfectly. Physical collectibles tend to increase in value over time, as many of the original items are lost, discarded, or broken, except for those that are released in limited supply. However, collectible NFTs are (for the most part) inherently valuable immediately upon release, due to the tight control of their supply. A nearly unbreakable certificate of ownership also ensures that those who buy NFTs can keep them safe and eliminate the threat of fraudsters creating fake copies.
5. Virtual avatars and video game skins
While some NFTs seek to usurp the value of physical items and assets, others fit neatly into existing digital marketplaces. As in the case of virtual avatars and video game skins, where NFTs have found a welcoming home among online and gaming communities. To give you an idea of how far NFTs can go in the online world, Reddit recently launched an NFT avatar marketplace.
6. Designer sneakers
NFT slippers cannot be touched. You can't even wear them. But this has not prevented its demand from increasing. Like trading cards and other collectibles, NFT shoes are fetching huge prices on digital markets. The average price of a pair of NFT sneakers is $6,000-10,000. If you want to buy CryptoKicks (a Nike proprietary product), be prepared to shell out around $20,000 for certain pairs.
7. Music
NFTs even have the potential to change the landscape of digital music, a territory that has been the victim of massive piracy for the last few decades. NFTs offer musicians the opportunity to regain some control over their products and to bypass the middlemen in the distribution process. Some artists are releasing single editions of their albums, and others are offering limited media packages.
8. Authentication
NFTs not only have the ability to prove ownership of digital assets, but can also be used as more secure substitutes for “real world” paper certificates of authenticity. For example, by pairing a wallet with a certain product (such as a ring) with its corresponding serial number, sellers can prove its authenticity through proof of purchase that is recorded in the blockchain ledger.
The controversy over NFTs
As you can imagine, the same level of controversy surrounding cryptocurrencies also affects NFTs.
❌ Buyer Fees
When trading NFTs, users typically have to pay a fee known as “gas” (the commission required to carry out a transaction on the Ethereum network). However, some users believe that these fees are too high, to the point where they could kill the future growth of this sector.
❌ Plagiarism
NFT artists must pay gas fees when they mint their NFTs. Despite paying these ever-increasing prices, they have discovered fake NFTs on certain trading platforms, raising concerns about the safety of the works they upload and sell.
❌ Fraud and security
Fraud and scams abound in the NFT market. There are many reports of buyers having their digital wallet credentials stolen, resulting in a huge financial loss. The digital asset market in general is in a kind of Wild West phase. According to the security company Privacy HQ, 90% of people surveyed say they have been scammed in one way or another.