What are NFTs?
An important aspect of blockchain technology involves digital assets such as tokens and coins, called cryptocurrencies. In short, cryptocurrencies are fungible, which means each bitcoin is worth the same amount regardless of what variety it is: one bitcoin is equal to one bitcoin regardless of its type.
Additionally, NFTs, which are tokenized representations of non-fungible items on a blockchain, are other digital assets. There are no similar, interchangeable items in the world, so there is no such thing as a non-fungible item. All non-fungible items, such as collectibles, antiques, homes, and fine art, are valued differently depending on who sees them; or, as someone once said, “everyone’s trash is somebody else’s treasure.”
Non-fungible tokens are not the non-fungible items themselves but instead represent their ownership. An NFT manages ownership of an item on a blockchain, which tracks ownership on the blockchain’s ledger, similar to cryptocurrencies. In current NFT technology, a lot of focus is on how they can be used to display art.
NFTs also have the following characteristics:
- Non-interoperable: The CryptoPunks game cannot be played with CryptoKittys, and vice versa. Also, trading cards cannot be used in Gods Unchained; a Blockchain Heroes card cannot be used.
- Indivisible: Notable transactions cannot be broken down into smaller denominations like bitcoins. Their existence is exclusive to their whole.
- Indestructible: Since all NFT data is stored on the blockchain via smart contracts, each token cannot be destroyed, removed, or replicated. Since NFTs are immutable, their ownership belongs to the players and collectors, not to the companies that create them. It differs from buying things such as music from the iTunes store, where users buy the license for listening to the music and don’t own it.
- Verifiable: Among the benefits of storing historical ownership data on the blockchain is the ability to trace items like digital artwork back to their original creator, which makes them possible to authenticate without third-party intervention.
How an NFT works
- Create the NFT’s smart contract
An NFT, like fungible cryptocurrencies, can be exchanged and stored in some cryptocurrency wallets by implementing a smart contract, which manages ownership. Ownership and exchange are governed by smart contracts, which include the possibility of having a percent of proceeds from the sale of the NFT retained by the creator in perpetuity (similar to music royalties).
2. Prepare the NFT
An NFT is minting through a smart contract on a blockchain, which represents a non-fungible item. There are many platforms available to creators, including OpenSea, SuperRare, and many others. By using such platforms, users can create NFTs without having to know the underlying technical details of smart contract code deployment.
3. Sell NFTs
The vast majority of NFTs are sold from the same platform where they are minted. Authenticity and ownership of the non-fungible item can be easily tracked thanks to the immutable record of the NFT’s origins and ownership recorded on the public blockchain.
What can non-fungible tokens be used for?
NFTs have been questioned by many. Despite its infancy, there are already several uses that the concept can be put to. The following are among the most noteworthy ones:
- A ticket
As part of our open step, event tickets are among the uses of NFTs. There should be a record of exchange if tickets are created using non-fungible tokens. Due to this, anyone trying to scalp tickets, steal tickets, or use counterfeit tickets will be unable to do so. A token attached to a ticket cannot be replaced since it is linked to a Blockchain.
- The fashion industry
Through the use of NFTs, a couple of major fashion industry issues might be addressed. Digital records of authenticity facilitate issues such as counterfeiting in the first place. An authentic luxury item might have an attached NFT that verifies its authenticity.
Tokens could also provide crucial information about an item’s origins, such as its materials and where it is made. People might be able to make more ethical decisions as fashion and sustainability issues become more pressing.
- The collectibles
It’s a point we’ve already discussed. A good deal of people collects trinkets and memorabilia. In a sense, NFTs serve as a digital signature or stamp of approval, ensuring authenticity.
- The gaming industry
Video games have an enormous economic impact on the gaming industry, as we explored in our article. In games, NFTs provide players with unique items they can own. In-game tokens can power entire ecosystems, whether for fun, authenticity, or competition.
NFTs: pros and cons
Thus, non-fungible tokens seem to be in vogue at the moment. NFTs do have some positives and negatives, but what are they? Here are some advantages and disadvantages to consider:
Pros of NFTs
NFTs are often touted as having the following advantages:
- Digital assets are owned by artists: A NFT allows content creators to benefit from the work they create by showing authenticity, as well as profiting from it. Memes, for instance, can generate a lot of income for their creators if they are widely shared.
- Their uniqueness makes them collectible: Collecting something unique or rare is exciting for many people. Especially in the case of digital assets, NFTs give collectible content an extra layer of legitimacy.
- Immutable: Blockchain-based non-fungible tokens are impossible to alter, erase, or replace. This quality is also important when proving the origin or authenticity of digital content.
- Smart contracts can be included in them: Blockchain technology also has smart contracts, which are quite intriguing. Their function is to store instructions that will be executed once a certain condition is met. An NFT that includes a smart contract could, therefore, grant artists a percentage of future profits when the NFT is sold.
Cons of NFTs
Nevertheless, there are some downsides to every new technology. There are several disadvantages to NFTs, including:
- The market is speculative: NFTs still have a lot of uncertainty as to their true value. Are they long-term investments? Is it merely a passing trend? There’s no way to tell for sure. Right now, NFTs are only valued for their emotional qualities.
- Copying digital assets is possible: It doesn’t mean that copies of a digital asset don’t exist just because someone owns the NFT for it. Videos can be posted on various websites, GIFs can be copied, and art can be pasted. An NFT does not mean you have control of the asset – it merely signifies authenticity.
- The cost of the environment: Ethereum and Bitcoin are two cryptocurrencies based on blockchain technology that have faced criticism for their environmental impact. Records must be entered onto a blockchain with a great deal of computational power. The sustainability of assets based on blockchain is still an open question.
- It is possible to steal them: While NFT technology is relatively secure, many of the platforms and exchanges are not. Thus, several NFTs have been stolen after cyber security breaches.