NFT explained

#nft #web3 #blockchain

NFT explained

If you are in any way as curious as I am, well I am sure you have asked the question; what are NFTs? or what is it about NFTs that make them so mainstream. While NFTs have been around for quite a while, it took Beeple, Cryptopunks, and Bored Ape Yacht Club to put this new technology on the map. Ever since then Adidas, Nike, Disney, and many celebrities have jumped into NFTs. And just like we saw with Crypto’s developmental cycle as Chris Dixon explained;

Chris Dixon’s on Cryptonetworks and why they matter via a16z

it started with Price which led to interest, then new ideas erupted and then we had startup projects created related to it and we saw further increase in value and a directly proportionate increase in price.
NFT’s can be tricky to understand, however, the more they make headlines the more reasons we have to understand just what it is.

What are NFTs?

Let’s start with a definition. To expand on the acronym. It simply means Non-Fungible Token. To elaborate on that;

NFT which stands for Non-fungible token is just a term used to describe a unique digital asset, whose ownership is tracked on a blockchain. This can be a really broad set of assets from;

A unique digital artwork
A digital collectible
An essay
A virtual baseball trading card
An in-game item
A music
A video
These digital assets are bought and sold online typically with cryptocurrency. To make it much simpler to understand, NFTs are simply a way to make digital files ownable. You can now own a JPEG or an MP3. So, when you say you create an NFT, you’re metaphorically ‘uploading’ that file to the blockchain such that anyone can track its provenance and attribution.

What Makes Non-Fungible Tokens Important?
The focus is on the word fungible which in the simple dictionary meaning means changeable, replaceable, interchangeable, you get the idea. Something fungible simply means it can be changed and replaced. For example, when you think of $1, that’s fungible or even a single BTC is fungible as it can be replaced. Meaning it retains the same value.

To further explain this, let’s talk a bit about how NFTs are different from Cryptocurrency;
NFT stands for non-fungible token. It’s generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends. Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value — one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.
NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). One NBA Top Shot clip, for example, is not equal to every day simply because they’re both NFTs. (One NBA Top Shot clip isn’t even necessarily equal to another NBA Top Shot clip, for that matter.) NFTs are unique in value, each has a different value.

A Brief History of NFTs
Before there was Ethereum there as always been NFTs.

2012: Colored Coins

The concept of NFTs was introduced in 2012 when a paper by Meni Rosenfeld introduced the concept of “Colored Coins” issued on the Bitcoin blockchain. The paper was titled overview of colored coins. The term “Colored Coins” loosely describes a class of methods for representing and managing real-world assets on top of the Bitcoin Blockchain and can be used to prove ownership of those assets.

Colored coins aid the groundwork for further experimentation in the future. This is the beginning of our origin story.

2014–2016: Counterparty

During those years, a significant amount of development and experimentation has taken place in platforms built on top of the Bitcoin blockchain. It was the start of Ethereum’s reign over NFTs. Most notable is the Counterparty platform which allowed the creation of digital assets. Later on, Spells of Genesis followed Counterparty’s footsteps and through its platform pioneered issuing game assets.

Counterparty is a peer-to-peer financial platform and open-source, distributed Internet protocol constructed on top of the Bitcoin blockchain. It was among the early Bitcoin 2.0 platforms and provided a way for users to create their tradable currencies or assets. It was used for, among other things, meme trading in 2016 with the release of Rare Pepes NFTs. This was the beginning of the shift for NFTs to the Ethereum blockchain.

NFTs go public: 2017–2021

NFTs find a better home on Ethereum
With the introduction of the Ethereum blockchain in 2014 and its platform going live on July 30, 2015, a new age for the NFTs began. The Ethereum blockchain introduced a set of token standards that allowed the creation of tokens by developers. In brief, the token standard is the subsidiary of the smart contract standard. For the blockchain that supports the smart contracts, the token standard is often included to tell people how to create, issue and deploy new tokens, which are based on their underlying blockchain.

2017: Cryptopunks
Building on the popularity of the likes of the Rare Pepe Directory, creative technologists John Watkinson and Matt Hall created a set of 10,000 unique characters on the Ethereum blockchain, whereby no two were the same. The 10,000 Cryptopunks were rapidly snapped up and traded online.

The influence of the Cryptopunks project helped inspire the NFT ERC-721 standard and establish the current crypto art movement.

2017–2018: CryptoKitties

CryptoKittiesis a blockchain-based virtual game that allows players to adopt, breed, and trade virtual cats from the safety of their wallets. It was released by a Vancouver-based company called Axiom Zen and was introduced during the world’s largest hackathon for the Ethereum ecosystem. With over 400 developers attending, it was the perfect place to introduce the game. This project went viral soon after. It was so popular that people were making crazy profits trading those cats.

Also, the activity was so high that CryptoKitties clogged the Ethereum blockchain in general, which made it even more prominent. After witnessing this activity, people began to realize the true power and potential of NFTs.

NFT gaming: 2018–2020

Between this period and moving forward, NFTs slowly but surely caught public attention, most certainly through NFT gaming and metaverse projects. The first to enter this space with its decentralized Ethereum-based VR platform was Decentraland (MANA). In Decentraland, gamers can explore, build, play games, collect items, and more. Imagine Minecraft, but whatever you build, find and earn there, you own as well.

Soon after, platforms and games with Enjin Coin (ENJ) started emerging, a blockchain-based platform that allows developers to tokenize in-game items on Ethereum. With the use of ENJ, it can back those items with real-world value. Likewise, Axie Infinity (AXS) surfaced, a blockchain-based trading and battling game that’s partially owned and operated by its players. All those platforms were in development through the crypto-winter (bear market) and under the radar of many people. That is until 2021 came and NFTs went mainstream.

What the future holds: 2021
The NFT explosion 2021

In 2021, interest in NFTs increased. Other Blockchains such as Cardano, Solana, Tezos, Flow, etc. started getting into the game with their version of NFTs, establishing new standards to ensure that the digital assets represented are authentically one of a kind. Specifically, at the beginning of the second quarter of the year, the buying surge was so astonishing that the mainstream media often called for a huge bubble that was about to burst. Likewise, the fourth quarter showed a significant surge in NFT demand, especially in the metaverse field just after the announcement of Facebook renaming itself as Meta and moving to the metaverse as well.

2021 and beyond
The history of non-fungible tokens is much longer than most people realize. As we start moving from an experimental era to the mainstream, the future holds endless opportunities. Despite the massive growth that we recently experienced, I believe that this space is still young, and growth will only continue. I believe that the NFT space will grow as more and more people realize the impact that NFTs can have in most of our current fields. To get a deeper understanding of the history of NFTs you can check out this article written by Andrew Steinwold.

What is NFT Minting?
Minting an NFT involves uploading a digital art file such as an image, gif, or video and bringing it onto the blockchain network. Once the NFT is brought onto the decentralized network, it will live there forever and cannot be removed or modified.
Whoever brought the NFT onto the blockchain will have their crypto wallet address tagged to the NFT. This means that even if an NFT is bought and sold between 200+ people, its provenance is trackable to its original creator/owner.
As complicated as it may sound, most marketplaces (Opensea, Rarible, Foundation, MakersPlace) have simplified the process. Market places are places you can mint and sell your NFTs. Will talk more about marketplaces when I share a few steps by step on how to mint an NFT.

How do NFTs work?
NFTs exist on a blockchain, which is a distributed public ledger that records transactions. You are probably most familiar with blockchain as the underlying process that makes cryptocurrencies possible. Specifically, NFTs are typically held on the Ethereum blockchain, although other blockchains support them as well.

An NFT is created or minted from digital objects that represent both tangible and intangible items, including:

Art
GIFs
Videos and sports highlights
Collectibles
Virtual avatars and video game skins
Designer sneakers
Music

Even tweets count. Twitter co-founder Jack Dorsey sold his first-ever tweet as an NFT for more than $2.9 million.
Essentially, NFTs are like physical collector’s items, only digital. So instead of getting an actual oil painting to hang on the wall, the buyer gets a digital file instead. They also get exclusive ownership rights. Yes! NFTs can have only one owner at a time. The unique data of NFTs makes it easy to verify their ownership and transfer tokens between owners. The owner or creator can also store specific information inside them. For instance, artists can sign their artwork by including their signature in an NFTs metadata.

Conclusion
Essentially, NFTs are still a very recent development in the world but the crypto space moves at a fast pace and there have already been a lot of developments in NFTs so that they provide more utility rather than just images such as providing unique experiences to the owner.

It’s an inevitable story of technology that you give people tools and things will happen — so it’ll be interesting to see what happens as we keep on innovating within this space.