Non-Fungible Tokens & Applications
By Daniel Fishman, Alex Loia, and Emily Yuan
Intro & History
By now, you’ve probably heard the phrase NFTs thrown into a conversation involving Bitcoin or other cryptocurrencies. But what are they, and how are they relevant as the world becomes more and more decentralized? NFTs (non-fungible tokens) are unique digital assets marketed as a form of a cryptocurrency token. Unlike bitcoin or Ethereum, NFTs are non-fungible, meaning they cannot be swapped out for other interchangeable tokens.
NFTs are unique because they create scarcity using the blockchain network and prove authenticity and ownership of digital assets. You can think of NFTs like digital baseball cards. You can make, buy, and sell NFTs. However, you cannot duplicate an NFT. Unlike actual baseball cards, it is basically impossible to mimic an NFT because of its digital signature on the blockchain. It is practically impossible to counterfeit an NFT, which gives them their value.
NFTs are a fairly recent concept. In 2012, Colored Coins were the first concept to represent modern NFTs. Colored Coins similarly used blockchain technology to store digital assets, however the idea was much less sophisticated.
Then in 2014, Counterparty was released. Counterparty is a unique, open-source financial platform where users have the ability to create personal tradable currencies and other assets. This was the first occurrence of having tradable collectibles on the blockchain.
In 2017, Cryptopunks and CryptoKitties were released. These were sets of thousands of unique characters on the Ethereum blockchain that could be bought and sold on the blockchain. Both Cryptopunks and CryptoKitties rapidly increased the hype surrounding NFTs as consumers raced to buy and sell these one-of-a-kind tradable assets.
Finally, in 2021, NFTs became mainstream. Major rock band Kings of Leon released their most recent album, When You See Yourself, on NFT and co-founder of Twitter Jack Dorsey announced he is selling an NFT of his first-ever tweet. NFTs are becoming more and more common, and while there may be an unsustainable amount of hype around them currently, it is safe to say NFTs are here to stay.
How to Make an NFT
You might be wondering how you can get started with buying and selling NFTs, so you can get on the way to building your decentralized fortune. At their core, NFTs are increasingly implemented as ERC1155 tokens. This standard is defined within Ethereum and provides interfaces for accessing relevant data like the owner, ID, and amount owned on the Ethereum blockchain. Most of the time, metadata like attributes, colors, and other specific information is stored off the blockchain either on centralized servers or decentralized solutions like InterPlanetary File System (IPFS). Metadata is accessed via a designated token URL stored on chain. That means with a fairly simple Solidity contract you could slap together a NFT and get it on the blockchain in no time. Fortunately, platforms like OpenSea allow for digital creators to easily upload their work and sell it without needing to know how to program on chain. All that’s needed is an Ethereum wallet with some ETH or other accepted token to start making your own NFTs on these platforms. Unfortunately, due to the sky-high gas prices for transactions on the Ethereum chain at the moment, listing an NFT most likely won’t be worth it unless you’re expecting to garner a significant bounty for the underlying asset, whether that be a GIF, an article, an in-game accessory, or even a deed of sorts for a physical asset. Hopefully, with the adoption of Ethereum 2.0 and its focus on increased efficiency through the Beacon Chain and Proof of Stake validation, gas prices needed to incorporate transactions will fall sufficiently to allow NFTs listed at lower prices to become viable.
Applications of NFTs
NFTs have been rapidly growing in popularity after headlines upon headlines of record-breaking sales for tweets, baseball cards, art, and more. As NFTs become more mainstream, there is no doubt that more applications will surface, but right now, they are currently being used for trading luxury goods, art, games, and more.
A significant application of NFTs today is digital collectibles. This provides a platform for creators to monetize their work — you may have seen that last week, a previously unknown artist sold a digital piece for $69 million, beating out almost all modern physical pieces ever sold. Additionally, assets such as NBA TopShot and virtual sneakers have been wildly successful over this crypto market.
The technology can also be used for online-offline integration by tokenizing real-world assets as an NFT. For example, you could make it so that whoever owns the token for a piece of art, let’s say the Mona Lisa, actually dictate ownership for the physical piece as well.
Aside from collectibles, NFT-based games allow players to purchase NFTs of characters, objects, and more. The most common NFT games include Sorare, Decentraland, Gods Unchained, and My Crypto Heros. These types of games were first developed by blockchain-first developers and then followed by industry leaders such as Ubisoft.
Essentially, NFTs can be used for anything to assist in asserting ownership over an asset, whether virtual or physical, whether it is a piece of art, a domain name, music ownership, or property.
This Article Itself is an NFT
Now, for an example: Go to https://opensea.io/collection/23andnftree to see our collection of items purchasable as NFTs! Here you’ll see a collection of different images as well as this very blog post! You read that right, this content itself can even be encoded as an NFT for anyone to own. There are no boundaries on the expansion of NFTs across the Internet as microtransactions become increasingly easy through web3-enabled Dapps powered by Ethereum and related frameworks. As we’ve seen, the ability to own digital content opens innumerable opportunities to reform how data is currently communicated, collected, and used online. Go forth and create your own NFT today!
Sources:
https://opensea.io/blog/guides/non-fungible-tokens/
https://www.digitaltrends.com/features/what-are-nfts-non-fungible-tokens-history-explained/
https://minddeft.com/blog/nfts-and-their-use-cases-the-minddeft-guide/
