Satoshi Nakamoto wouldn’t have guessed that people would soon buy digital collectible CryptoKitties and Punks as well as celebrity music after Bitcoin was created in 2009.
All of these uses made use of an entirely new Ethereum standard to identify unique assets on its blockchain. The ERC-721 is better known as the solution to the creation and transfer non-fungible tokens.
What is NFT?
What is a non-fungible tokens (NFT) and how can it be used?
An NFT can be described as a cryptographic token that uniquely defines an asset. It can be used to represent a digital asset, such as an image. However, it can also be used to track real-world assets such as a car or house. You can identify assets uniquely, which allows you to prove ownership and authenticity.
It might be a puzzle to you why non-fungible tokens are needed to track assets uniquely. Regular tokens that are created using the HTML20 standard have a problem: they can be divided and interchangeable.
This property is not intended to be used for the tracking of unique assets. This could allow you to divide your digital image, or physical car into multiple tokens and distribute them. This would negate the purpose of non-fungible tokens. You want one token to point at a single asset. Furthermore, if tokens can be duplicated, it is impossible to identify them all.
Non-fungible tokens are therefore able to solve the interchangeability issue. An ERC-20 token is interchangeable with any other ERC20 token. ERC-721 also addresses this property. Each NFT token tracks an asset and cannot be exchanged with another asset.
Let’s look at a fungibility case to help you understand the concept better. For digital currencies like Bitcoin, the fungibility property is most important. This allows users to trade Bitcoins freely with one another, regardless of which Bitcoin they own.
But, if we apply fungibility on digital assets, it would mean that users can freely trade them and that we can’t prove ownership. However, you can interchange them with other assets. This is a problem when we need to identify assets uniquely. Non-fungible tokens were created to address this problem.
What are the characteristics of non-fungible tokens?
We have discussed the importance and benefits of NFTs being non-fungible. We have already discussed the importance of NFTs being non-fungible. Let’s now take a look at three characteristics that make NFTs desirable – uniqueness and rarity.
We have already spoken about the importance of uniqueness. You can use NFTs to identify an asset uniquely by providing metadata that describes it and sets it apart.
Decentraland is an example of a project that sells virtual land pieces. The metadata is a combination of virtual coordinates, and the properties of each piece of land. It includes information such as its percentage covered in grass or the number of buildings.
NFTs are popular because of their rarity (also known as scarcity). Token developers have the freedom to set the limit for their tokens with a traditional ERC20. Let’s suppose you need 1,000,000 tokens. Yes, that’s possible. Are you looking for more tokens? You can increase your total supply in your smart contract by using different algorithms. Or, you can ban it altogether.
NFTs make it impossible to create infinite new assets. Because you can only identify each asset once on the blockchain with Rarity, NFTs are highly sought after by collectors.
Assets are rare because someone else cannot register them. So NFTs have value because they are rare, so long as people want them to be valuable. You can trade a piece in a game for a piece land, just as you would with a real piece.
You cannot split NFTs. One full bitcoin can be owned, for example. If you don’t have the money to purchase a complete bitcoin, you can buy 10 percent of it in smaller denominations. satoshis are the denominated units for bitcoin.
This example is extended to say that you don’t want users to be able to purchase 10% of a train tickets. You would not be able buy the full bitcoin if Bitcoin did not have non-fungible properties.
What does it take to make Non-Fungible Tokens?
As we have already mentioned, Ethereum introduced the HTML721 standard which allows developers to create unique assets. It was completed on the 24th January 2018. It defines the functions that Ethereum contracts must comply with. The ERC721 metadata agreement is more intriguing for us, as it contains the real magic.
You can specify both the name and symbol of the NFT you want to delineate. A URI must point to a JSON file which describes the unique properties. Another form of data notation is the JSON file. It stores information such as the name, description and URL of the NFT.
Why are we using non-fungible tokens
NFTs can be very useful for digital economies. Many micro-economies are found in the gaming industry. Take a look at Fortnite: Battle Royale, League of Legends and CS:GO. Each game has an in-game economy that allows players to trade their assets. For winning a game they often get in-game assets such as skins or stickers to customize their weapon.
This is where gamers will pay money to get a gorgeous skin that enhances their gaming experience. Gamers do not own these assets. The game can often control the price of in-game assets and make changes to skins which can lead to the skin’s price dropping sharply. This is what happened with CSGO skins in the past.
This is how to avoid it
“NFTs can be a great use case in gaming economies so digital assets cannot be altered, the scarcity is controlled and gamers can trade them.”
This could even allow for inter-game economies, where weapons or avatar skins can be used in different games.
The decentralized identity movement has many benefits, including NFTs. You can link physical assets such as your car or house to your decentralized identification, which becomes a proof of ownership that you can trustlessly transfer your assets on a global marketplace.
Here’s a list of possible NFT representations.
- Art, both digital and physical
- Items such as stickers or skins are available in-game
- Items in a virtual universe, such as a piece land,
- Real-world assets such as houses or cars
- Identity-related properties such as certificates or medical history.
Let’s now list five top projects that use NFTs.
What projects use NFTs in real-world situations?
NFTs have been introduced to many projects. Let’s look at some of these most notable projects.
It is impossible not to mention CryptoKitties, as this was the first mainstream use case for NFTs. Its concept is very similar to Pokemon Go. Instead of finding Pokemons with unique characteristics, digital crypto cats can be collected. You can breed cats to create new cats and discover new characteristics.
Next, Decentraland allows you to own a piece virtual land. You can further develop or build on your land. All these details are saved in the metadata of your NFT. The game also allows you to trade virtual territory with other gamers, allowing you to create large virtual communities.
Do you remember playing card games with your friends and exchanging them, like Yu-Gi-Oh! To complete their collection, some collectors even listed cards on eBay and other online marketplaces. It wasn’t an easy task back when it was possible to trade and collect cards. Card collectors had many uncertainties.
- What happens if I order a card but don’t get it?
- What if the card that I bought online is fake?
- What is the best way to prove ownership of a card purchased?
Gods unchained created a card game that allows you to collect cards and issue NFTs. All of these problems can be solved digitally. You can also verify each card’s authenticity. You can also quickly exchange ownership of cards using an Ethereum transaction.
NBA Top Shots
NBA Top Shots, which is built on FLOW blockchain, is undoubtedly one the most popular NFT platforms.
This is a new concept that captures different moments from NBA games and then mints them into NFTs. You can find different tokens that have a different rarity.
Some moments can be minted into just a handful of NFTs while others can reach thousands. As investors flood the market for them, they are gaining in value.
It is also interesting to note that the platform has rapidly risen to be one of the most hyped. Every pack drops receives thousands of eager participants on the waiting lists.
OpenSea Marketplace to NFTs
Last but not least, the OpenSea Marketplace allows any NFT to go up for auction on the platform. OpenSea is a decentralized marketplace that allows trading to take place through smart contracts. You can trade over 200 types of NFTs including CryptoKitties and SuperRare art as well as Gods Unchained card, Gods Unchained, and Ethereum domains.
How do I buy NFTs?
Let’s now learn more about NFTs and how to buy them. There are two main marketplaces that have a lot of NFTs. OpenSea is one of these, while Rarible is the other.
Let’s take a look at How to Buy an NFT on OpenSea. You will need an ERC-721 compatible wallet, such as MetaMask, to use them both.
Here is the browsing section. You can see that you can find different collections on the left. These are the ones most in demand.
You can see the time remaining until the auction ends by clicking on each NFT. In this case, we click on the Wrapped MoonCat NFT.
This is the NFT buying page. All the necessary information is at your fingertips. You will find the price history, the creator, and a description of NFT. Also, the current offers are listed below. There are two options from here.
You can first buy the NFT directly to get its listed price. It’s 0.999999 ETH in this instance. To participate in the auction you will need to click the button below to “make an Offer”. Your account will be debited if your offer is accepted. In return, you will get the NFT.
NFTs and Beyond
How did NFTs achieve such high value? The same goes for asking why a painting is worth 1,000 euros. You don’t have to pay $1,000 for a fake painting. A digital painting can be yours, and you can prove it is authentic.
The final value of an NFT is determined by how much one is willing and able to pay. The object’s value is not intrinsic to it, but rather is assigned by those who consider it valuable. Value is, in essence, a shared belief.
It is also fascinating to see that certain NFTs have exploded in price. Beeple’s NFT “The First 5,000 Days”, which was sold for $69 million, is an example.
NFTs, which act as proof of ownership or authenticity for digital and physical items, have been gaining a lot in popularity and exposure. NFTs also allow users to trustlessly transfer ownership and eliminate fraud.