Non-Fungible Token (NFT): Digital Art in Blockchain

You may have heard that the first tweet of Twitter CEO is getting sold! Or a digital art sold for $69 Million! All this is possible due to a weird yet emerging technology called Non-Fungible Token (NFT). In this article, you will understand everything you should know about this wonder called NFT.

What is NFT?

It is the unique data stored on a blockchain. We can't interchange it with something else. In simple words, we can trade one bitcoin for other. It makes bitcoin fungible. But NFT is one of its kind. And can't be exchanged for similar items. NFT includes digital arts such as pictures, videos, and audio.

Now, you may be wondering that anyone can record the files. So, why are people willing to spend such a substantial amount on buying this 'publicly available' art? But here's a catch. By recording the files, you are creating only a copy of these items. But their ownership remains with the buyer, which blockchains can anyway verify.

Remember one thing, NFT is not a copyright. It just proves the ownership of a person over a digital asset.

History of NFTs

If you think that the history of these marvelous tokens is boring, you are wrong. It all started in 2014 when Counterparty was founded and built on the Bitcoin blockchain. It attracted projects like card games and meme trading. Afterward, CryptoPunks and CryptoKitties launched in 2017. You wouldn't believe that people were trading and breeding virtual cats. And it went viral, with the kitties selling for over $100k!

Nike also tried NFTs to verify the authenticity of physical sneakers. In 2021, the NFT craze increased substantially with the sale of the Nyan Cat meme and Jack Dorsey's first tweet.

How do NFTs work?

Now, you may have a basic idea that NFT trading is done through blockchains. But one can’t transfer it through every blockchain. Popularly, most NFTs are part of the Ethereum blockchain (in case you don't know about Ethereum, it is a cryptocurrency like Bitcoin). It ensures that only authentic people can own the digital arts, and thus prevents hacking.

NFTs are similar to physical art. You pay to get ownership of an item that you think to be valuable. People may download a picture of the Mona Lisa. But it doesn't mean that they own them, does it? Besides, it also reduces the possibility of theft due to the high security of blockchains.

There are some standards that developers have to comply with to create tokens. They are called token standards. Vital token standards for the working of NFTs are:

• ERC-20: It is for tokens built on the Ethereum blockchain. It represents a collection of rules to be followed to ensure compatibility with crypto wallets dealing in Ethereum. The network has 300k as of October 2020, which is a 50% growth YoY. And the number is rising consistently.

• ERC-721: It reflects the single unique asset. It stores information through smart contracts, containing the information regarding ownership and identity of the assets. It is considered better in terms of security, transparency, and immutability.

• ERC-1155: ERC-721 is used to create new digital assets. But ERC-1155 is the secret behind its application. It provides support for fungible and non-fungible token applications.

Application of NFTs

With the growing popularity of NFTs, the uses of NFTs have also increased beyond their conventional applications. The applications of NFTs include:

• Art: Initially, it was used to tokenize digital art for authentication and transferring ownership to the buyer. Now it is gaining popularity. NFT auctions have increased to such an extent that it has become the most common use. It allows users to view the entire history of the art, including the previous prices and owners.

• Fashion:  Like that by Nike, it is used in the fashion industry to verify the originality of luxury items digitally to avoid counterfeit. It has reduced carbon emissions and protects consumers by giving all relevant information.

• Licenses and Certifications: NFTs are used to tokenize licenses and certifications to preserve ownership. Imagine getting your college degree through blockchain! It becomes strong evidence for verification and can be easily stored.

• Sports: You will find it hard to believe that it is used to tokenize sports tickets also. It prevents counterfeit tickets and merchandise. For instance, an NBA player tokenized his contract in 2019 for others to invest in it. The number of tokens could become a measure of the success of the athletes depending on their performance.

• Gaming and Virtual World: Can you imagine that NFTs are also used to do transactions in the virtual world. You can own and create virtual land. Also, you can sell it at good margins. Technology has come a long way, isn’t it? Besides being used in the virtual world, it is used for in-game elements as well.

• Collectibles: As in the case of CryptoKitties, NFTs can be used for collecting valuable items digitally. The collectors speculate that their value will increase manifold in the future. That is why they are willing to pay a massive amount for expanding their collection.

Criticisms

Just like blockchain and cryptocurrency, this, too, has its limitations. Firstly, it takes a heavy toll on the environment to create a token and transfer the same. Unlike physical items, it isn't free from hackers. Professional hackers can hack your million-dollar painting. Moreover, the value of tokens is volatile and may deteriorate with time if it becomes obsolete!

Closing remarks

Just like crypto, NFT is the new fad among artists and art collectors. It has various benefits over physical art due to the use of blockchain. With the increasing technological advancements, it will become cost and time-friendly to use these tokens. Hence, their applications will further diversify into new and different areas, which have not been explored previously. 

In the end, remember that we are in an era that not just uses technology but lives in it. So, ensure that you have sufficient knowledge and awareness about this magnificent technology.

Embrace the technology! Go Digital!