NFT

What is NFT

A Non-Fungible Token (NFT) is a digital object that signifies that a unique item is stored on the Internet. It can be in the format of a photo, video, image or audio file.

The blockchain itself is actually a registry of records. For example, Bitcoin or Ethereum are records on the blockchain. NFT is also one. Such tokens, like any other cryptocurrency, can be stored in your crypto wallet and you can make transactions with them, buy and sell them. These tokens leverage smart contracts technology.

But there’s an important difference. Bitcoins, ethers, other digital currencies, and even fiat money are easily replaceable and divisible. Just like $0.1 dollar, 0.1 BTC or 0.1 ETH is not unique, because it can be exchanged for any other 0.1 BTC, 0.1 ETH or $0.1.

NFT, as a concept and standard, did not appear yesterday. The first popular collections date back as far as 2017 – these are CryptoPunks and CryptoKitties, which came out on Ethereum. In addition to these, there were many others that did not leave such a prominent trace in history.

Interesting fact. Collecting digital objects on the blockchain has become really popular just since the COVID19 pandemic started.

How does NFTs work

Suppose an artist drew a picture and took it to a storage facility. The work of art was placed in a box and the person was given a document stating who owns the masterpiece and where it is located. Here NFT is a certificate confirming the ownership of the painting.

Data about a unique object is structured into smart contracts, encrypted and placed in the blockchain, a digital registry where all transactions between the seller and the buyer are recorded and stored. The information is secure: it cannot be deleted or overwritten.

The price of a NFT digital asset is determined by the market – it depends on supply and demand. Various factors can influence the price:

• Who created the token;
• The artistic value of the work;
• How exclusive the offer is;
• How the owner benefits in the physical or digital world.

The NFT price is formed during the contract process between the seller and buyer on the platform or is determined during bidding at an auction when bidders compete against each other and bid.

The areas of usage of the NFT

• Art & digital-art
• Music
• Movies
• Gaming
• Real Estate
• Collectibles
• Avatars and characters

Notably, NFT is increasingly integrated with RWAs (Real World Assets) – real material assets. These include real estate, transportation, artwork, collectibles, securities, and precious metals. Traditional assets that were illiquid and market-limited are now tokenized and traded on blockchain platforms. For example, Roofstock trades conventional homes via NFT on the OpenSea platform.

Another interesting application was the use of NFT as part of investment fundraising. Cards received after the mint or bought on the secondary market can be sent to Staking, for which the coins of this project will be credited. In words, everything may look very tempting, but do not forget that you will be given phantoms, which may not be worth anything. Without a thorough study of tokenomics in such projects can be entered only for speculative purposes.

Major global brands are supporting the technology and creating their own NFT projects. For example, Disney, together with blockchain company Dapper Labs, is launching the Disney Pinnacle NFT platform. On it, users will be able to collect and exchange cartoon characters from the studio, icons from Pixar, and Star Wars characters – they are presented as collectible digital objects.

Moreover, NFT is now being combined with artificial intelligence technology, which allows anyone to create unique paintings and sell them on marketplaces. With the help of a text query, the user sets models of the characteristics of the future creation: style, colors, theme, characters. The AI generates the original image, and the person translates it into NFT on the blockchain platform. The model can add animation or make the artwork dynamic.

The creation, buying and selling of NFT happens on various platforms like

• OpenSea
• Rarible
• SuperRare
• Nifty Gateway
• Foundation
• Sorare and more.

Key advantages of NFTs

• Uniqueness. Each token has individual characteristics that are prescribed in its code. One NFT cannot be exchanged for another. For comparison you can take two banknotes of the same denomination – they are equivalent and interchangeable. But an original painting by Salvador Dali and its copy are different works of art with unique properties. NFT is just the original, which the author created in a limited or single copy.
• Liquidity. NFT can be easily and quickly bought and sold through special platforms and marketplaces.
• Transparency. Since all transactions with NFTs are recorded in the blockchain, it is possible to trace the history of the object: who is its author, how ownership was transferred and who owns the asset now.
• Compatibility. NFTs don’t get stuck on one platform, they can be moved between different applications, platforms, and games. This makes tokens easy to adapt to changes in the market.

Conclusion

In the end, as we can see, developers are trying to cross NFT-technologies with already familiar computer games, to track supply chains with the help of cards, tokenize real estate, as well as to use NFT to confirm the ownership of offline items. However, this symbiosis of technologies is still rather experimental. But one thing is clear – in the very near future we will see large-scale use cases in addition to cartoon animals.