It seems as though every artist, company, project, startup, or anything in between is looking to release their Non-Fungible Token (NFT) collection for a particular use, someway or another. But what are NFTs? How do they function? And what’s their importance?
Let’s jump in.
In their purest form, NFTs are tokens representing the ownership of unique digital items found on the blockchain. The technology allows users to tokenize digital materials or real-life items such as art, collectibles, and even real estate, or, in some instances, represent a ticket or receipt to identify participation within a particular project.
The beauty of NFTs lies within their ability to pertain to only one official owner at a time within the blockchain they reside on. For instance, the Crabs within the Play-and-Earn game Crabada are NFTs found on the Swimmer Network and owned by the players themselves – or withdrawing and selling them on the game’s marketplace or in secondary ones.
With that in mind, NFT games can now offer ownership of in-game assets to players. By building games on the blockchain, publishers can generate in-game assets as NFTs.
According to Ethereum.org, Non-Fungible is an economic term used to describe things like furniture, a song file, or a computer – meaning that these items are not interchangeable with other items since they possess unique properties. Conversely, the U.S. dollar, Bitcoin and Ethereum are all fungible and are freely interchangeable.
How Do NFTs Work?
The technology is created using the same type of programming used for cryptocurrencies; however, they can’t be exchanged or traded equivalently with other cryptographic assets.
Bitcoin (BTC) and Ethereum (ETH) paved the way for the emergence of new formats of digital assets that attracted thousands of investors and moved trillions of dollars. NFTs are a form of token and were initially based on a standard issued by Ethereum, ERC-721.
Standards define how developers should create smart contracts and assets within blockchains – and Ethereum is the first significant smart contract blockchain.
According to Investopedia, ERC-721 defines the minimum interface required for the exchange and distribution of gaming tokens (ownership details, security, and metadata).
“The ERC-1155 standard takes the concept further by reducing the transaction and storage costs required for NFTs and batching multiple types of non-fungible tokens into a single contract,” it explained.
For example, Twitter’s former Jack Dorsey created an NFT of his first tweet on the platform, selling for more than $2.9 million. The tweet read, “just setting up my twttr.”
Another notable example is the digital artist Beeple, who sold a collection of NFTs representing a collage of his first 5,000 days at work for a record $69 million.
Why Are NFTs Important?
The technology is considered an evolution within the world of crypto, as they reinvent the infrastructure behind modern finance systems consisting of sophisticated trading and loaning for different assets.
“To be sure, the idea of digital representations of physical assets is not novel, nor is the use of unique identification. However, when these concepts are combined with the benefits of a tamper-resistant blockchain of smart contracts, they become a potent force for change,” Investopedia highlighted.
The act allows for the conversion of physical assets into digital ones in a streamlined manner, eliminating the need for intermediaries – this will enable artists, for example, to communicate directly with their audience.
On the business side of things, consulting firm Ernst & Young developed a solution that provides certain physical products to have NFTs to be used within the supply chain, aiding the ability to track its provenance, production, and sales through the entire process.
NFTs have already had a big impact on the creator economy as well as the potential to disrupt vast swaths of global commerce, the gaming industry, the global supply chain, and the list goes on. Through blockchain technology, we are witnessing a potential sea change in how we value digital ownership.