What happens when the world of collectibles and unique assets goes digital and can be accessed, bought, sold, and traded online using blockchain technology?
NFT = Nonfungible Tokens
Let us just say the use cases we can see from this can be wide-reaching. What are we talking about? We are talking about Nonfungible Tokens, or NFTs. This How-To Crypto report was originally published in October of 2020 but recently updated with some more NFT info and stats...
Since then we have seen massive hype and adoption of the NFT space. In the first 2 months of 2021, NFT sales volume has exceeded all of 2020 sales volume. In this updated report, we will also look at some of the top projects driving adoption and who is getting involved.
Humans have been collectors since the beginning of time. Collecting precious and rare items, whether to show off to others or to benefit from trading them for a higher value than what we acquired it for has intrigued many over the centuries. Imagine the wide range of collectibles, art, rare coins, sculptures, property, sports collectible cards, collectible gaming cards, and even rare stamps.
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Why the hype around NFTs?
Now take those rare, unique, valuable items and imagine each in a digital form. Digital scarcity first became prevalent with the rise in awareness of Bitcoin. Bitcoin is what is called a fungible asset. This means each Bitcoin is just the same and has the same value as the next. If you and I swap Bitcoin, there is no difference in value between the two. The same can be said for fiat currencies in the form of dollars and coins.
Over the last few year, there has been a rise in popularity of Nonfungible Tokens, also called NFTs, in the cryptocurrency world. The digital scarcity that became more widely known from Bitcoin, combined with the ability to give each token unique characteristics, allows the creation of digital collectibles with a wide range of use cases. NFTs first caught the attention of many in the cryptocurrency world in late 2017 with the rise in popularity of CryptoKitties, digital cats you could collect, sell, trade, and even breed. Below we will look at what exactly is a nonfungible token, the history and evolution so far of nonfungible tokens, use cases for them, and also, what is the potential future of them.
Technology behind NFTs
Nonfungible Tokens, or NFTs each have unique characteristics. They are not interchangeable with other NFTs and can each have their own unique characteristics. Each token can store rich metadata that can give access to whatever the creator wants the owner to have access to. They are also not divisible. Back to the Bitcoin example one more time. You can send someone 0.1 or even 0.00000001 of a Bitcoin.
An NFT can only be sent as the whole unit. Nonfungible tokens can be created on many blockchain ecosystems, but Ethereum protocols have been where we have seen the most creation and development so far. ERC721 has been the most widely used Ethereum protocol to develop NFTs. ERC721, as defined on erc721.org, is a minimum interface a smart contract must implement to allow unique tokens to be managed, owned, and traded. It does not mandate a standard for token metadata or restrict adding supplemental functions. Much of the development today still uses this token standard. In 2018 and 2019, we saw Enjin release an updated standard ERC1155 that can be used more widely for online gaming.
Some of the main upgrades of ERC1155 standard include the ability to create and manage different asset types with a single smart contract, batch sending of NFTs, and reduced gas cost in transactions. Both ERC token standards, and even NFTs on a select few other blockchain ecosystems can have unique characteristics, in both the digital appearance of the NFT and the data that is contained within the token that can give the owner and even creator of the token.
For example, physical art that is created only benefits the creator the first time it is sold, but NFT digital art can have written in the smart contract the ability to pay a royalty back to the creator for each transaction of the NFT. More on this when we discuss NFT use cases. Also, since NFTs utilize smart contracts, you could utilize data from an oracle service to feed data that could affect the look or function of the NFT.
For example, baked into the smart contract code, you could have the NFT to be green in color if the daily candle for Bitcoin is green or red if the daily candle for Bitcoin is red. This creates so many possibilities for utilizing data events to dictate the NFT actions.
A deep dive into NFT Space
Now, let’s look at what has evolved so far in the NFT space. People love collecting a wide range of things so the possibilities of what can be tokenized is almost limitless. CryptoKitties was not the first nonfungible token, but it was definitely the first to catch the attention of many. As mentioned above, you can buy, sell, trade, and breed digital cats. Each cat has unique characteristics and the rarer the characteristics, the more value can be placed on these digital cats.
CryptoKitties image source.
This makes the CryptoKitties sought after and collectible, as someone could take interest in the characteristics of several kittens and wish to own many of them. In late 2017, the highest value transaction was a purchase of a CryptoKitties cat for 600 Eth, which had a value of over $150,000 at the time. Many were wondering how in the world can a digital cat carry so much value. But at the same time, many developers and creators began to pay attention and dig in to all the implementations and use cases they could capitalize on in the nonfungible world.
Since then, on the Ethereum blockchain alone, there have been more than 25 million NFT transactions with over 4 million transactions in the first half of 2020. The next NFT project to rival the popularity of NFTs is Decentraland. Decentraland is a digital world where users are able to purchase digital land. The digital land itself is a nonfungible token. Owners of land can sell or develop their digital land. At the time of this writing, the average price of a sale of land in Decentraland is averaging around $700.
Users can also use the native token MANA within this digital world to purchase props and clothing, which are also NFTs. Users with or without VR equipment now can explore this digital world, even without being a landowner. There are virtual conference centers, museums, and even casinos built in this virtual world. Other popular virtual world NFTs are MegaCryptoPolis and The Sandbox. Another popular NFT collection over the same time period is Gods Unchained, which allows users to play games similar in concept to Magic The Gathering or Hearthstone.
There are many different NFTs available today so make sure to check out nonfungible.com to see what is out there. This site gives you a ranking similar to what you would find for fungible tokens on Coinmarketcap or Coingecko. They also release reports for different sectors of NFTs, along with an annual report at the end of every year.
How it all started...
Many NFTs have come on the scene since 2018, but we have yet to see the full potential of use cases when it comes to NFTs. One of the main use cases we will see widespread adoption and development with NFTs is the gaming industry. Gamers are already accustomed to being in the digital world and even paying for or acquiring digital assets that can be used in games. NFTs can give the ability to buy, sell, and trade digital assets on a blockchain that can allow assets to be used across multiple games.
Each can carry a value available for resale. The next use case that is catching a ton of traction is with artists. Artists can be plagued by counterfeits, plus the only benefit to the artist is the first time a piece of art is sold. NFTs allow that art to be stored in digital form, and even animated if they desire to. Plus, there can be a clause in the smart contract that would allow a sort of royalty to be paid back to the original creator each time the NFT is sold. The NFT can be the art, or it can be a certificate of authenticity for a physical piece of art that represents ownership and that proves the physical item is not a counterfeit. Another NFT use for collectibles other than art, are for collectibles such as sports collectibles or game cards.
Just like we saw a rise in popularity over the years of sports trading cards of our favorite athletes and cards such as Pokemon in high demand, the more rare they are, the more you can create digital scarcity with a digital form of these cards and even add animation or 3d effects to those collectibles. Domain name service can also be tokenized and traded on the blockchain. Unstoppable domains has risen in popularity with the ability to create .crypto domains.
Since each has to be unique, highly sought-after domains are openly traded on NFT trading exchanges such as OpenSea. Ownership of physical goods, as mentioned in the art example above, can also use NFTs to show and prove ownership of any unique asset such as real estate, vehicle titles, or anything with a unique identifier, especially those with serial numbers where each serial number is unique.
NFTs can even help to stop the widespread problem of fake and counterfeit tickets to events such as sporting events and concerts. With NFTs, each ticket can be validated as true and legitimate as most ticketing systems assign a unique number to each ticket. Take that a step further and that digital ticket stub becomes a collector’s item, or momento for the owner, just as physical ticket stubs have been in the past. It is safe to say that NFTs even have the potential to be used as a form of identification, and even track birth, death, and marriage records. No more looking for your birth certificate to prove your identity. Just open your digital wallet and show it. Lost your phone. Do not worry, you can have your keys to restore that wallet on another device in a safe or secure digital drive at home.
In the last few months since this report was originally published we have seen many artists move into the NFT space, with some pieces selling for tens of thousands and hundreds of thousands of dollars, with several exceeding the $1 million sales price. Artist Beeple recently had one of his NFTs sell for $6.6 million. NBA Topshots has done over $230 million in sales as proof the sports card collectible movement is still alive and moving to a digital platform.
You can even turn a tweet into an NFT as we saw Jack Dorsey, CEO of Twitter, have his first tweet as NFT achieve a $2 million bid price, along with CZ of Binance and others fetching high prices for tweets as well. Many musicians, athletes, and well known entrepreneurs have been advocating for NFTs and building NFTs as well. We also saw the Garbage Pail Kids and Steeetfighter collectibles come alive on the Wax protocol. With the rise of Eth gas fees, Wax has seen an increase in users for both minting NFTs and buying NFTs. Tezos is also in early stages of development with NFT minting and marketplaces. A recent test mint of creating an NFT on Tezos was 98% less than minting the same NFT on the Eth network.
You may be wondering how to acquire NFTs or where you can trade them. There are several main markets to obtain NFTs, but this list will surely be growing and expanding rapidly. Here are a few options of where to view NFTs that are available for purchase and where you can place them for sale on a marketplace. First let us look at it from a mobile device since so many people use their phones more than home computers. From your phone, you will need a wallet app that has a web3 browser in it.
A wallet app such as Trust Wallet, Metamask, or Enjin Wallet can be used as each app has a web browser in it that can link to your cryptocurrency wallet within the app. From the browser, you can go to Opensea.io or Enjin marketplace in Enjin Wallet to browse what is for sale or place one of your NFTs for sale. From a computer, you can either use the Brave or Chrome browser and Metamask wallet browser plugin to connect a wallet and visit Opensea or other NFT marketplace website. Usually most NFTs are priced in Ether value, so you will need Ether in your wallet to make purchases. Other websites are also available to buy, sell, trade, and even create your own NFTs. To stay up to date on marketplaces available, follow NFT resources on nonfungible.com, Coindesk, or Cointelegraph.
As you can see, the use cases and potential of Nonfungible Tokens, or NFTs can be almost limitless. 2021 will be a big year for the development and implementation of NFTs across many sections of business and trade. The potential designs will continue to evolve and develop as well, due to the ability of resources to make and mint your own NFTs without the need to know coding. The token standards are open source and can easily be created. Nifty, an NFT platform by Gemini trading exchange, partners with artists to bring their art to the digital space.
MakersPlace also now hosts a marketplace for artists to host and sell high quality art NFTs. Other platforms like Enjin Mintshop and Rarible allow you to create NFTs simply by uploading the data you want it to contain. You can mint and sell NFTs without ever having to learn a line of code. But the real question remains of who will want to buy your NFTs and why? What makes them unique? What creates the demand for them? That will determine which ones will rise in popularity and which ones will never have much, if any value. This report could easily be expanded upon and turned into a book on NFTs and the technology behind it. Our challenge is to begin to study what nonfungible tokens are and follow what is happening with them. This space can benefit coders, artists, creators, and collectors, but only those that truly learn and innovate in this space. What will you do to continue your education on NFTs?
Content written by Blockchain Wayne and NewsCrypto Team