(Source images courtesy Bored Ape Yacht Club) Visit to see the whole collection of BAYC NFTs)
An NFT is a Cryptographic Token that can help you manage digital creative arts and collectibles effectively and transparently, along with many other use cases.
Cryptocurrencies have taken the world by storm over recent years, however, they aren’t the only kinds of cryptographic tokens. An NFT (Non-Fungible Token) is a type of crypto token. They can help organizations and people to tokenize digital creative arts and collectibles. This helps in the transparent and effective management of these digital artifacts. We explain what NFTs are and why they are needed. Subsequently, we cite a few popular examples of NFTs and NFT marketplaces. We talk about their pros and cons. Finally, we briefly talk about how to create NFTs. Read on.
Non-Fungible Tokens (NFTs): What they are
Even if you are new to the world of crypto, you have already heard of terms like “cryptocurrencies” and “crypto tokens”. Many people use them interchangeably. However, they aren’t the same.
Cryptocurrencies cater to one primary use case. That use case is peer-to-peer payment without the intervention of banks and governments. Cryptocurrencies have their own blockchain networks. Bitcoin (BTC), Ether (ETH), Ripple (XRP), etc. are a few examples.
Cryptographic tokens are digital assets created cryptographically, which is their similarity with cryptocurrencies. You can create a crypto token using an existing blockchain platform though. E.g., many entrepreneurs created them using the Ethereum blockchain platform. Cryptographic tokens cater to a wide range of use cases other than payment.
NFTs are cryptographic tokens where each token is unique. You can trade one Bitcoin for another Bitcoin since they are the same. You can’t trade one NFT for another though. This uniqueness of an NFT helps organizations and people to tokenize creative arts and digital collectibles.
NFTs are indivisible. You can divide a Bitcoin or Ether into smaller units. However, you can’t do that to an NFT.
Why would you need NFTs?
The digital space is vast, and it opened up many opportunities. Take the field of creative arts for example. Artists only had limited reach before the advent of the Internet. However, the Internet helped them to reach out to a wider audience.
While that’s great, artists face a different kind of challenge in the digital world. It’s too easy to copy digital arts. Questionable actors can easily pose as creators and owners of digital arts. Original artists lose out on fair compensation, and they don’t get due recognition.
Artists needed a technology solution to uphold their rights as creators. The solution should help them to get compensation for their creation. Owners should be able to buy digital creative arts from artists, and owners should be able to prove their ownership rights.
NFTs fit the bill. These crypto tokens are unique. This makes them suitable to tokenize unique pieces of digital arts and collectibles.
NFTs are built on blockchain technology. Blockchain offers decentralized security, immutability, and transparency. Artists record themselves as the creator, and owners record their ownership. No one can tamper with this data.
NFTs are increasingly popular. A PYMNTS.com report states that the total sales volume of NFTs in the first 6 months of 2021 was $2.5 billion. This is a sharp rise from $13.7 million in the entire 2020.
Examples of well-known NFTs
The following NFTs attracted a lot of interest in the crypto world:
Bored Ape Yacht Club (BAYC)
Did you ever expect that a collection of cartoons involving apes will fetch millions of dollars during an auction? A group of 101 NFTs from the Bored Ape Yacht Club (BAYC) project sold for $24.4 in an auction at Sotheby’s.
Yuga Labs, an American company created the BAYC project. The project includes over 10,000 colourful digital cartoons. These cartoons are interesting images of apes wearing a range of clothes and accessories. These apes have various facial expressions.
CryptoKitties was one of the first blockchain-based games. Dapper Labs, a Canadian company created it using the Ethereum blockchain platform.
The company launched it in November 2017, and the game became popular quickly. Players can trade, collect, and breed digital kittens. Each virtual cat is an NFT.
“Everydays – The first 5000 days”
Beeple, a well-known digital artist launched this collection of creative arts. The artist launched this collage as an NFT. It fetched $69 million during the auction at Christie’s.
The Nyan Cat NFT
Chris Torres had first created Nyan Cat, a popular GIF in 2011. Torres launched an NFT version in 2021 to mark its 10th anniversary. This commanded a price of 300 Ether, which amounted to $590,000 at the time of the transaction.
The first Tweet from Jack Dorsey
Jack Dorsey, the founder and CEO of Twitter had posted his 1st Tweet in 2006. In 2021, Dorsey auctioned it as an NFT. It sold for $2.9 million.
Note: Do you think NFTs cater to creative arts, digital collectibles, GIFs, and memes only? NFTs can do more than that! Propy is a blockchain company that offers a blockchain platform for the real estate sector. It supports buyers, sellers, agents, etc. Buyers can sell their properties and NFTs using this platform.
A few popular NFT marketplaces
NFT marketplaces are similar to other online marketplaces. However, NFT marketplaces focus on NFTs. NFT enthusiasts can sign-up on such a marketplace and select a crypto wallet.
Digital artists or game companies can upload their artifacts on these platforms as NFTs. Many of these platforms provide user-friendly tools to create NFTs. Creators of digital collectibles or artworks can opt for a regular sale or auction.
Buyers can browse a list of NFTs. They can buy, alternatively, they can bid in an auction. The NFT marketplace facilitates the entire transaction.
The following are a few popular NFT marketplaces:
• Nifty Gateway;
• Myth Market;
• Enjin Marketplace;
Pros and cons of NFTs
NFTs offer the following advantages:
• Creators of digital artifacts can prove that they created the artworks. Blockchain provides security, transparency, and immutability. No one can tamper NFTs, therefore, no one can falsely claim to be creators.
• NFTs offer a new revenue stream for digital artists. They could earlier sell their digital artworks online, however, now they can sell them to crypto enthusiasts too.
• NFTs help artists get compensation for their work. Unethical people can easily copy digital artworks from others. Real artists don’t get compensated. NFTs offer transparency, furthermore, they use blockchain smart contracts. Smart contracts are pieces of code with “If-Then-Else” statements. They transfer cryptographic assets based on predefined conditions. No one can tamper with them or reverse their execution. These properties of smart contracts ensure only the rightful creators get the compensation.
NFTs have the following disadvantages:
• NFTs might involve a high degree of speculation. Which NFT will become popular and which will not make any significant mark in the market? You can’t answer these questions objectively since sentiments are aesthetics are subjective.
• Hackers target crypto exchanges, and this impacts NFTs too. Crypto exchanges are centralized websites. They don’t use the advanced security mechanisms of blockchain. All cryptographic tokens are subject to this risk, and it’s not specific to only NFTs.
• Most businesses use the Ethereum blockchain platform to create NFTs. Ethereum uses the POW (Proof of Work) consensus algorithm. This is computing and energy-intensive. Reports indicate that Bitcoin mining consumes more electricity annually than in many countries. A rise in the demand for NFTs will increase energy consumption, which might not be sustainable.
A brief note on creating NFTs
Businesses and developers often prefer the Ethereum blockchain platform to create NFTs. That’s due to the rich ecosystem of Ethereum blockchain development tools and resources. This ecosystem includes the following:
Ethereum Virtual Machine (EVM): It’s a platform to develop smart contracts and DApps (Decentralized Apps) that run on the Ethereum blockchain.
Solidity: Solidity is a proprietary language from the Ethereum project team to create smart contracts. You need to code smart contracts to create any cryptographic token on Ethereum, which includes NFTs.
Remix: It’s an IDE (Integrated Development Environment) to code Solidity smart contracts.
ERC-721 standard: This is the Ethereum standard for non-fungible tokens.
Eth-lightwallet: This is a user-friendly Ethereum wallet that many developers use.
Ganache: It’s an easy-to-use Ethereum blockchain client.
Truffle: It helps to organize, test, and deploy smart contracts.
Ropsten: It’s an Ethereum testnet, i.e., a test network to test smart contracts.
MetaMask: It’s a browser extension and crypto wallet that helps to test smart contracts.
NFTs enable digital artists and game developers to manage their unique artifacts. This includes creative arts, unique game characters, trading cards, etc. In this guide, we talked about what NFTs are. We explained their importance. After reviewing a few examples of NFTs and NFT marketplaces, we talked about their pros and cons. Finally, we examined why many developers use the Ethereum blockchain to create NFTs.