Everything you need to know about NFTs
NFTs (also known as non-fungible tokens) are revolutionizing the digital art and collectibles world. Earlier, content creators, artists, and other professionals faced challenges to monetize their work. They had to rely on agencies or companies to promote their work. These companies shared the money and rights to the work that the professionals created. However, NFTs revolutionized this paradigm by empowering professionals to have complete ownership of their work.
Digital artists are capitalizing on the NFT opportunity to amplify their earning opportunities. In addition, celebrities are riding the NFT wave as they see it as a perfect way to connect with their fans. All of this has escalated the popularity of NFTs. According to NonFungible.com, the NFT market grew by 2,100%, making a total sale of $2 billion in Q1 2021.
What is an NFT?
An NFT is a digital token that represents a unique tangible and intangible asset – such as artwork, real estate, audio, video, sports card, and more.
The key characteristics of an NFT include the following:
- Non-fungible: NFTs are unique – no NFT can be traded for another NFT.
- Indivisible: NFTs cannot be fractionalized; they exist as a whole.
- Immutable: NFTs store their data on the blockchain using smart contracts. They cannot be replicated or destroyed.
- Verifiable: NFTs store ownership data on the blockchain, making it easier to trace and verify the original creator of an NFT
How does an NFT work?
The majority of non-fungible tokens are built on the Ethereum blockchain. Akin to Bitcoin, Ethereum creates a permanent digital record of transactions of the underlying token.
The copyright for an NFT remains with the original creator, who can replicate the NFT as many times as desired. However, the buyer of the NFT has to seek the creator’s permission to create a copy (or multiple copies) of an NFT. Like physical collectibles, duplicate copies of an NFT are not as valuable as the original one.
In most cases, the original creator of an NFT receives royalty every time an NFT is sold.
Applications of NFTs
- Digital Art
NFTs provide a good solution for artists to sell their pieces of art. Artists simply need to tokenize their work and list it on an NFT marketplace to initiate the selling process. They can choose to sell the original piece or a copy of the NFT.
Collectibles have harnessed the potential of NFTs to eliminate the need to partner with an agency to make money. Like artwork, collectibles had to face challenges identifying original and fake copies, but NFTs and their underlying blockchain technology help verify and authenticate the provenance of tokens.
Basketball is an ideal example of a sport that capitalizes on the NFT opportunity. The National Basketball Association (NBA) has a platform called NBA Top Shot that sells the best highlights of basketball players. As outlined by Coindesk, the platform made a total sale of over $700 million in less than a year.
The source of NFTs is online gaming. The industry tokenizes in-game unique items to provide an authentic user experience to gamers. These tokens can be bought, sold, or used to incentivize players.
The entertainment industry is the most affected by piracy. People manipulate digital files and share them on the internet, making it difficult to trace their authenticity. NFTs are leveraged to address this problem by creating immutable digital copies of audio and video files. These files are impregnable to manipulation or deletion without the consent of the creator.
- Real Estate
The real estate industry is tapping into the NFT market to secure the ownership of stakeholders. It is using the unique identification code to differentiate fake documents from the original ones.
5 most expensive NFTs
- Everydays: The First 5000 Days
An artwork by Beeple, Everydays is the most expensive NFT that was sold at the Christie’s for $69.3 million.
- CryptoPunk #3100
The first NFT created on the market, CryptoPunk is the second most expensive NFT sold for $7.58 million.
- CryptoPunk #7804
The Punk #7804 is another NFT that made its way to the list of most expensive NFTs when it was sold for $7.57 million.
Crossroads is another artwork by Beeple that was sold for $6.6 million a few days before the remarkable sale of Everydays.
- The First Tweet
Jack Dorsey’s tweet, which is the first tweet, gained much attention recently when it was sold for $2.9 million.
What’s next for NFTs?
As NFTs continue to acquire traction, they are opined to gain acceptance across industries – luxury brands anticipated to lead the adoption. Brands like Gucci and Louis Vuitton are experimenting with virtual goods and are expected to release NFTs soon. Arianne, a Paris-based company, is already providing its NFT-powered tracking solution to various luxury brands like Breitling and Audemars Piguet. Apart from disrupting the luxury space, NFTs will be instrumental in creating unique digital experiences and engaging with online customers. Besides, decentralized commerce is seen as another use case of NFTs. It could empower merchants to tokenize physical assets and services to reduce online transaction costs by eliminating intermediaries.
With huge potential and use cases spanning industries, NFTs are opined to reign the market.