What are NFTs (Non Fungible Tokens) and what is their future?
In short, Non-Fungible Tokens (NFT) are a unique cryptographic key tied to content that can be digital or physical. Something like the virtual equivalent of a property title.
Its main use cases are in the niches of art, digital collectibles, music and objects within video games.
Cryptocurrencies, digital privacy and/or security tokens, among other digital assets, are rapidly evolving alongside the blockchain. NFTs are one of the fastest growing sectors in the crypto industry and here we intend to explore what they are, how they work and how they are being used.
And there is every reason to have them on the radar: the volume of exchanges in NFT’s reached $10.67 billion in the third quarter of 2021, an increase of 700% over the previous period that denotes a strong trend. This has been coming since the start of the year, when digital artist Beeple sold an NFT collage of his work for $69 million, making him the third most expensive living artist at auction, after David Hockney and Jeff Koons.
Non-fungible tokens?
NFTs are digital assets that contain information recorded in smart contracts . This data makes each NFT unique, and as such cannot be replaced by another token. They cannot be exchanged one for another, since they are all different and so is their value. A ticket, in contrast, can be replaced by one or more other tickets with the same value since they do not represent any difference for the user.
Bitcoin is a fungible token, one can exchange one bitcoin for another and they will have the same value. They can also be divided into fractions and send or receive small parts, since fungible tokens are divisible. In contrast, a non-fungible token development is typically not divisible, in the same way that one cannot send a person half an entry. Half input does not serve its purpose, nor does it hold any value. It should be noted that some investors have experimented with the concept of fractional ownership of NFTs, but it is still seen as a risky gray area.
What makes them special?
NFTs have unique attributes, usually tied to a specific asset. They can be used as title deeds for virtual items such as a skin (virtual skin or personality) within a game, but also as title deeds for physical assets. Other Tokens are fungible in the same way as a coin or bill. Fungible Tokens are identical and retain the same value and attributes when exchanged.
How do they work?
Tokens like Bitcoin, Ethereum, or other ERC-20 based alternatives are fungible. Ethereum’s non-fungible standard, used by platforms like Crypto Kitties, is ERC-721.
Non-fungible tokens can also be created on other smart contract compatible blockchains. Even though Ethereum is the standard, the ecosystem is expanding with blockchains like Solana, Flow, Secret Network and TRON all supporting NFT’s.
NFTs and their smart contracts make it possible to add specific attributes such as the identity of the owner, rich metadata or secure links to sensitive files. The potential of NFT development to immutably create and prove digital property is important progress for an exponentially growing digital world. They also represent the promise of blockchain as a platform to guarantee security in digital exchanges of any type of asset.
Creating centralized applications and platforms for managing these assets is still relatively complex, so imposing a reference standard remains an open challenge. Blockchain technology may need to overcome its fragmentation to seek success in unified protocols that guarantee interoperability and, consequently, rapid access to liquidity for these assets.
Who are setting trends?
CryptoPunks is one of the oldest projects in the NFT space. Created by LarvaLabs in 2017, the CryptoPunks are a series of 10,000 24×24 pixel images portraying “punks” with random characteristics including gender, hair, and even accessories.
Initially available for free, CryptoPunks now command an immeasurable amount of resources, with the cheapest ones on offer for sums of over $100,000, while the rarest ones go for several million dollars. Even Visa, the payments mega-corporation, jumped on board with CryptoPunk #7610, as part of its collection of “historic artifacts of commerce”.
Bored Ape Watch Club , a series of NFT avatars in the shape of bored monkeys, is something like membership to an exclusive club that offers benefits to its customers ranging from access to community spaces to a priority list to buy other NFT’s, such as Bored Ape Kennel Club or Mutant Ape Watch Club, two of its promising alternatives.
Axie Infinity is different. Collectibles with CryptoPunks and Bored Ape Yacht Club are perhaps one of the simplest applications of NFT technology, while Axie Infinity uses it in a more complex way, implementing it in the video game industry, in which it is the greatest reference.
The game itself is a kind of Pokémon clone in which we collect Axies, who we can train to compete or create for mating. Axie Infinity’s “play to win” mechanics enable players around the world to make a living breeding and trading Axies, but its learning curve is steep and with Axies valued at hundreds of dollars, getting started isn’t cheap.
Recent Development.
The NFT space has grown explosively. In August 2021, Open Sea, one of the most popular platforms for buying and selling NFTs, had a day with more than $75 million in trades, much more than the money that moved on the entire platform last 2020.
Rare CryptoPunks, Bored Apes, and Axis change hands for sums that could fix the lives of millions, drawing the attention of venerable institutions like Christie’s and Sotheby’s, who have adopted them into their business model and in some cases even launched their own platform, while art houses scratch their heads thinking about how to exhibit these digital works.
Financial bigwigs have been followed by big names as artists and celebrities join the wave of enthusiasm for NFTs. Multiple superstars like Snoop Dogg or Stephen Curry have admitted to collecting these assets, while others like Ashton Kutcher and Mila Kunis launch their new productions as NFTs.
What can we expect from its future?
For now most of the attention is around art, gaming, and collectibles, but more and more big brands are licensing their properties to move into this space. Fantasy football game Sorare has signed over 100 clubs to its platform, while IPs like Minecraft, Doctor Who and even The Smurfs have released products in the NFT space, and social network Twitter launched its own collection in June. of 2021, followed by a plan to verify users with NFT avatars.
In gaming, the trend is for them to act as title to our items, potentially helping to hold special items over time to be traded based on rarity.
The potential itself is much broader: applications in copyright and intellectual property, tickets to events and spaces, or to create exchange possibilities with music, movies, and digital video games.
In September 2021 the thriller Zero Contact became the first film to be released as an NFT, which was followed by Lockdown a few weeks later. In October, Autograph, athlete Tom Brady’s NFT platform, launched a music vertical, with The Weeknd as its first artist.
More serious possibilities, such as security tokens for physical and digital assets, are still on the table as a tool to facilitate the control and tracking of the ownership of certain assets.
Other applications may be the certification of academic degrees, software licenses and birth or death certificates.
The smart contracts of an NFT development immutably prove the identity of the owner and can be easily stored in a digital wallet. One day we will have all our bureaucratic, academic, property certifications and even our assets, centralized in one place.
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