Non-Fungible Tokens (NFT)
Let me guess, this is your 4th article, trying to understand about NFT’s, just like me. In fact, it took me 5-6 articles and a lot of deep research to understand all its jargons.
So, after reading, researching, and understanding for hours now, I think I somewhat know what NFT is. And I also think my head is going to burst now.
Anyways, to start with the basics, an NFT is a Non-Fungible Token. Very informative, isn’t it?
Sorry, so, a Non-Fungible Token (NFT), firstly, is not really a token. NFTs prove ownership of a digital item, like image, sound file, text, videos, digital art, etc. and, you can only buy these times using digital currency, like bitcoin, on digital platforms. And most importantly, Non-Fungible Token (NFT) is non-fungible or, in other words, unique, just like us 😉 A few terms in the above paragraph might have left you confused, or maybe you wouldn’t have really got the definition fully; I’ve gone through the same thing. But don’t worry, I’m here to solve all your queries.
For the time being, this is the only definition you should know. The main definition of Non-Fungible Token (NFT) is a bit complicated, and one needs to understand a few other things before we get there, or you’ll end up getting confused about the whole concept.
So, let’s start with the basics first.
A non-fungible token (NFT) is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable. NFTs can be used to represent items such as photos, videos, audio, and other types of digital files. Access to any copy of the original file, however, is not restricted to the buyer of the NFT. While copies of these digital items are available for anyone to obtain, NFTs are tracked on blockchains to provide the owner with proof of ownership that is separate from copyright.
Non-Fungible Token (NFT) is hugely interconnected to various terms, and you can’t understand Non-Fungible Token (NFT) without understanding those terms. To start with, let’s understand what fungibility is.
What Fungibility Is?
Fungibility, as defined by experts, is the ability of goods/assets to be interchanged or exchanged with goods/assets of a similar type.
Like, it’s a similar item but more in number, which can be interchanged; they have similar characteristics; Just like a clone (app). Or you can say items that are different but provide the same values. Okay, enough! Sorry for the rant.
Anyways, you understand what I’m saying, right?
To proceed with the topic, in reality, and by default, anything is rarely fungible. Meaning, most of the items are non-fungible with a level of fungibility attached to it.
These kinds of items do have their clones but are entitled as non-fungible items as they have attached feelings and other emotions of people.
For instance, you got your first salary this month and bought a bracelet for yourself. Now, there might be umpteen number of shops which sell the same bracelets, but that bracelet which you got for yourself out of your first salary will be more important to you, and you would be more attached to it (emotionally) as you’ve bought it out of your first payment. The same would go for other items. They might have a duplicate of them available worldwide. Still, that specific piece is important to you as you are (emotionally) attached to it and as it might provide you with some values that the duplicate of it might not.
You with me?
(considering a yes) Good!
So, based on Fungibility, anything can be classified into three categories, namely:
- Fungible items
- Semi-Fungible items
- Non-Fungible items
Fungible items are those which have 100% fungibility. Any item that is 100% interchangeable with a similar item, e.g., a $5 note, is interchangeable with either another$5 note or 5 distinct notes of $1.
These items are fungible but only within the same class. Their fungibility does not exceed out of their category.
- You want to buy a Dell XPS 13 black color. Now, it doesn’t matter from where you buy the laptop as it will be the same in all the shops/websites. Yet, a Dell XPS 13 is not interchangeable with an Acer Swift 3. Albeit both are cars (fungible quality), they differ in features and characteristics and don’t provide the same values or specifics, thus being interchangeable (non-fungible quality).
- Suppose you go to the supermarket to purchase Hellmann’s Mayonnaise (yummmyyy). You find about 1000 pieces of it lying on the shelf. Now, as you want to purchase Hellmann’s Mayonnaise, you will be indifferent about which Hellmann’s mayonnaise you pick; however, as you want to purchase Hellmann’s Mayonnaise Only, you won’t be indifferent about buying a Blue Plate Mayonnaise.
Most of the items across the globe fall under this category unless they are truely unique and scarce.
An item that is desirable or collected due to its rarity, utility, age, condition, personal emotional connection, and/or other unique features can be categorized as a non-fungible item.
It can be any physical item like a diary, jewelry, painting, furniture, etc.
Along with physical items, NFTs also consist of digital items that are unique and rare, like a domain name, song, digital art, movie, etc.
Non-Fungible Items are basically items that are not factory-built for the masses but are created exclusively for an individual.
Here, it is worth noting that the concept of fungibility is fully subjective and relative in all aspects.
It is the people/society who decide the uniqueness, scarcity, and interchangeability of an item. This explains that it is the people who decide the fungibility of an item, how fungible it is, how fungible it can be, or is it even fungible or not.
Now that we are clear about what items can be termed as fungible items, semi-fungible items, and non-fungible items, let us have a look at the ownership of non-fungible items.
What’s there to know about the ownership? You pay, and you get the item, that’s it!
For the ones thinking this, it’s not this simple.
The process of buying physical items that are non-fungible is way simpler than the process of buying digital items.
You go to a store -> choose the product -> pay for it-> and bring it home.
Kudos! The item is yours FOREVER!
But in the case of digital ownership, things work differently.
How Is an NFT 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 EVERYDAYS 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.)
What is Digital Ownership?
Most of the time, customers are confused with the ownership of the item and the right to access it. They often end up misinterpreting the two.
Before I start off with explaining the two, allow me to ask you a few questions to make the concept more clearer to you!
- Signing up for Netflix, do you own all the movies and shows, or do you just have access to it?
- Being a Spotify user, do you own the songs, or do you just have the right to access them?
- Purchasing an ebook from a reputed platform, do you own the book or just have the right to access it?
What will happen if all of these platforms suddenly shut down? Will you still have access to the services they were providing?
So can this be termed as Digital Ownership?
Then what is it?
It is just a Right to Access.
This means you pay for a service/item, and you get the right to access it and not the ownership of the asset. The company providing the goods can stop your access anytime at their will or can restrict it. It’s just like renting a house or a car.
This can also be termed as “Illusion of Ownership.” DR. Rebecca (Watkins) Mardon, Senior Lecturer in Marketing & Strategy at Cardiff University Prifysgol Caerdydd, Wales, United Kingdom, in an article explains, “The popularity of access-based consumption has obscured the rise of a range of fragmented ownership configurations in the digital realm. These provide the customer with an illusion of ownership while restricting their ownership rights.
Companies such as Microsoft and Apple present consumers with the option to “buy” digital products such as eBooks. Consumers often make the understandable assumption that they will have full ownership rights over the products that they pay for, just as they have full ownership rights over the physical books that they buy from their local bookstore.
However, many of these products are subject to end-user license agreements, which set out a more complex distribution of ownership rights. These long legal agreements are rarely read by consumers when it comes to products and services online. And even if they do read them, they are unlikely to fully understand the terms.” “If our local bookstore closed down, the owner wouldn’t knock on our door demanding to remove previously purchased books from our shelves.” She adds, “Consumers need to become more sensitized to the restrictions on digital ownership.
They must be made aware that the “full ownership” they have experienced over most of their physical possessions cannot be taken for granted when purchasing digital products. However, companies also have a responsibility to make these fragmented ownership forms more transparent.” So no more buying ebooks now?
We can now comfortably come to the conclusion ownership of digital assets is nothing but an illusion in the real world, being just the “Right to Access.” So what’s the solution for this? How can we actually own an asset in the Digital World?
T H I N K BLOCKCHAIN!!!
How does Blockchain fit in?
Blockchain could do wonders in the NFT world. Before the inception of Blockchain, there was no way to attain trustless digital ownership.
Giving us the ability to own a digital asset, Blockchain plays a prominent role as an ownership layer on the internet.
Any digital file on the internet doesn’t contain the true ownership rights of it. Because of which the creators of these digital files are unable to see how and where their work is being utilized. This calls for an establishment of clear ownership rights and felicitation of payment processes as and when required.
Blockchain solves a crucial networking problem for individuals who wish to undertake value exchange over a computer network by letting them do the deed with all safety and without the interference of a centralized governance institution.
This is made possible by rightly monitoring, verifying, and enforcing the exchange without any interference from centralized governance institutions.
A distributor ledger of transactions is created by the Blockchain that is then duplicated across many computers. This distributor ledger can be read and verified by anyone, creating visibility of all transactions.
Bitcoin is probably the first digital asset that could be owned in a true sense. Its trustless meaning that there no central authority that must maintain an account (such as a bank) for the enlistment of how many bitcoins a person owns.
I guess, by now, I’ve made it clear to you as to what true digital ownership looks like.
Now, let’s have a look at what NFT truly means.
What is a Non-Fungible Token (NFT)?
Non-Fungible Token (NFT) is the first step towards integrating individual ownership with digital assets, i.e., the non-fungible assets.
The definition you’ve all been waiting for this long is finally here!
A Non-Fungible Token (NFT) can be referred to as any digital item that can be created (minted), sold, or purchased on an open market, and owned and controlled by an individual user, without needing the permission or support of any centralized company.
NFT is a single token that is encrypted on the blockchain network.
Comparing NFTs and Bitcoin, we all are aware that the latter is a changeable coin and can be programmed with the community consensus, but NFTs can’t be changed.
The most prominent feature of any NFT is that it is a unique and proprietary asset.
From the above explanation and all the other topics discussed prior, we get the following equation:
NFTs are modern-day collectibles such as coins, stamps, tickets, etc., with the only difference that all of them are digital. They are a certificate of authenticity created by the Blockchain for digital assets like videos, artwork, music, etc.
And these are only the current use cases of NFTs. Skys the limit for potential use cases of this modern-day technology.
Currently, Non-Fungible Tokens (NFT) are only being used to identify ownership of Digital Assets; in the future, they may even be used in a similar way for physical assets.
You know finally know what an NFT is! *relieved* So now, what all details do an NFT consist of?
An NFT contains details about the digital asset that it represents and the details o the owner of the asset. This shows how NFT maintains an ownership ledger without the help of any trusting authority on a blockchain.
After knowing what NFT is and other details about it, let us now understand the standardization of ownership in NFTs.
We’ll be taking the Ethereum Blockchain as an example here to understand the standardization of ownership of NFTs.
The Ethereum Blockchain predominantly uses three token standards:
- ERC 20– issued for fungible digital assets
- ERC 721– issued for non-fungible digital assets and was pioneered by Cryptokitties
- ERC 1155– used for semi-fungible digital assets and was pioneered by the Enjin Team
Now, we can state that a Non-Fungible Token (NFT) on the Ethereum blockchain would either be standardized in tokens ERC 721 or ERC 1155.
Ethereum, no doubt, is the boss blockchain in NFT space currently, but it doesn’t mean it has no competitors/alternatives. Efinifty, including others, are also now emerging as new standards in the NFT space.
By habituating the NFT module, plenty of our problems relating to digital ownership would be solved, such as:
- There won’t be any regional barriers
- No middleman
- Increased liquidity of the asset all thanks to token standards
- Reduced transaction costs
- Asset interoperability
- Redemption would be easier
- Easy to trade
- Immutability and provable scarcity
After looking at Digital Ownership, NFT, Blockchain, etc., I would like to bring a new term to your knowledge that is the NFT Digital Art.
Now, what do you think NFT Digital Art is?
An NFT Digital Art is nothing but a digital art that is encrypted on a blockchain and is termed by a unique token of itself.
From the above definition, we can see that the NFT Digital Art has got a digital art + encrypted by Blockchain + has a unique token. All principles of Non-Fungible Tokens covered! So basically, and NFT Digital Art is a digital art that is sold through or with the help of an NFT.
There is seen a substantial boom in the adoption of NFT Digital Art since last year and more in 2021. And for this reason, plenty of artists like painters, singers, web designers have started to sell their art through a Non-Fungible Token (NFT).
Throughout the article, you might have noticed that I’m just talking about art pieces that can be sold and owned as an NFT.
So is it just art that we can own?
Let’s find out!
What else can be owned as an NFT?
Anything and Everything!
Yes, you heard it right! We can own anything through a Non-Fungible Token (NFT). These safe and trustless ownership modules can be used to own anything ranging from physical property to digital property, from college degrees to inheritance will, etc.
Amazing, isn’t it?
So, have you made up your mind to buy a Non-Fungible Token (NFT)?
But how do you do that?
How to buy a Non-Fungible Token (NFT)?
In the article, I’ve told you almost everything about NFTs but haven’t told you how to buy them yet. So, let’s see how you can purchase that captivating sunset painting you saw the other day.
The process of buying a Non-Fungible Token (NFT) is easy-peasy if you understand it well.
For a beginner, we start with creating an NFT Marketplace Account first.
These marketplaces help you buy and sell a Non-Fungible Token (NFT). There are umpteen marketplaces through which you can purchase different types of arts and collectibles. A few of the most popular marketplaces include:
- Nifty Gateway
- NBA Top Shot
- NFT ShowRoom
After you’re done with creating an NFT marketplace account, fund your account.
How do you do that? And why is it needed?
The answer to why it’s needed is that most NFTs are Ethereum based tokens (as mentioned earlier), and so most marketplaces accept ETH tokens as payment.
If you already have an account with a cryptocurrency exchange, then congrats; you can easily purchase Ethereum on it and send your crypto to your NFT marketplace account.
And if you don’t have one, then please get it!
You can try e Toro or Coinbase; they have a pretty good rating for beginners.
After doing the needed, you’re all set to finally buy an NFT.
Once you’ve funded your account, buying an NFT is just a child’s play.
Most marketplaces for buying an NFT are in an auction format, so you’ll be required to submit a bid for the NFT you’re interested in.
Another way to buy an NFT is through the exchange format. A few marketplaces operate through this method, like an exchange, using the highest bid and lowest ask for the NFT having several prints.
So you can choose the method you want to purchase the Non-Fungible Token (NFT) from.
Now that buyers know how to buy a Non-Fungible Token (NFT) let’s shed some light on how to sell an NFT.
Artisans and other sellers, take heed, please.
How much are NFTs worth?
In theory, anybody can tokenize their work to sell as an NFT, but recent headlines of multi-million-dollar sales have fueled interest.
On 19 February, an animated Gif of Nyan Cat – a 2011 meme of a flying pop-tart cat – sold for more than $500,000.
A few weeks later, musician Grimes sold some digital art for more than $6m.
It is not just art that is tokenized and sold. For example, Twitter’s founder Jack Dorsey has promoted an NFT of the first-ever tweet, with bids hitting $2.5m.
Christie’s sale of an NFT by digital artist Beeple for $69m (£50m) set a new record for digital art.
But as with crypto-currencies, there are concerns about the environmental impact of maintaining the blockchain.
How to sell an NFT?
Created a chic and classy digital art piece out of boredom?
Earn some money by selling it as an NFT!
But you don’t know how to sell an NFT, right?
No worries, ill teach you how that’s done!
So, before we go directly to the selling part, there are a few other undertakings to inspect. Let us go through those jargons first.
The first step for selling an NFT is the same as buying an NFT. Meaning, you’ll have to create an NFT marketplace at first.
Here, we will be considering one of the biggest NFT marketplaces, OpenSea.io, for creating, listing, and selling an NFT.
The first step here is to sign in with the help of your MetaMask Wallet.
Don’t worry; OpenSea doesn’t have those long, extended paperwork.
The NFT marketplace platform will first ask you to anonymously identify yourself with a confirmed wallet. After you’re done, you’re recommended to first confirm your email address and then complete your personal profile.
Now you are ready to add the art pieces that you wish to sell. Here, you can either have them separately or have them in a collection.
What’s this collection?
A collection here is a set of different NFTs (art pieces) that are related to each other in some way. Suppose, if an artist has a digital painting of seashores at various times in a day, he/she can add those paintings in one collection named “thalassic waves.” It’s basically like how a student has one folder for one subject which includes notes of different chapters.
After you’re done with adding all the info, etc., simply hit the create button. Now your digital content is successfully converted into a smart contract and sent to the Blockchain for FREE.
Now give a pat on your back cause you’ve successfully created your first Non-Fungible Token (NFT).
Now, the next step is to actually list the NFT for sale.
Going to the newly created items, click on the Save button of the NFT you want to sell. Next, you will be redirected to the listing and pricing page, where you’ll find three options; first to sell your NFT at a fixed price, second to sell it in an auction, and third to sell it on the highest bid and in the collection or the bundle listing.
You surely might’ve understood the first option, i.e., the fixed priced option, is easy.
Now, how does the second option, the Dutch-style auction, work?
In the dutch style auction, the price of your NFT will gradually drop until it reaches an ending price that causes the list to expire.
The third and the last option, that of the highest bid auction and bundle listing, allows you to sell several items simultaneously.
Now it’s up to you about which listing price option you’ll opt for. When you’re done with choosing, simply click Post your Listing option, and your job is done!
Also, If this is your first time listing a Non-Fungible Token (NFT), the OpenSea marketplace will require you to do several blockchain transactions, including confirming your wallet. You’ll also need to pay a transaction fee as Etherem network transaction gas with your wallet.
So what’s this gas fee?
These gas fees are required to successfully conduct a transaction on Ethereum. These are priced as per the market, with the increase and decrease in transactions. Luckily, you only have to pay these fees once for one collection.
Once you’ve signed and confirmed the transaction payment with your MetaMask wallet balance, your NFT will be immediately listed for selling.
How to create an NFT?
The process for the creation of an NFT is somewhat similar to the above two methods. But before that, there’s really important work that you’ll need to do. And that is to..
Choose an item to sell an NFT.
Sorry for being lame; let’s start with the actual process.
After you’ve chosen and signed in to a Marketplace of your choice, you’ll be required to set up and fund your wallet. For this, too, you shall make use of the same steps as mentioned above.
After you’re done with all the desk work, you are finally ready to create a Non-Fungible Token (NFT).
You’ll see a create button somewhere on your account page. Click the button to get started.
Here, you can either create on NFT or a collection of it.
Suppose you’ve decided to add a single art piece, you’ll have to input some information like name, description, logo, etc. This same process will follow if you want to create a new collection in your marketplace.
Currently, OpenSea only supports a few formats to cover media types of your digital content. These formats include:
- Images/Animations: JPG, PNG, GIF, SVG
- Audio: MP3, WAV, OGG
- Video: MP4, WEBM
- 3D Models: GLB, GLTF
One interesting feature that OpenSea provides for the listings you’re making is that you can add several fields and properties of the content. This extra information will provide the potential buyers with some insights or metadata of the content. And this information will be included inside the token contract.
There’s one more interesting feature that allows sellers to include unlockable content that will be only visible to the owner (the one who buys the NFT). The content can include anything, like a message for the buyer, a private link, or anything; the possibilities are endless.
After adding all the info, just hit create and your works done! You’ve successfully created your NFT!
Nothing is perfect. Everything has some flaw and is a deficit in some way.
Like everything else has some problem in it, so does NFT. Let’s have a look at the existing problems with Non-Fungible Token (NFT).
Existing problems with NFT
In my view, if you’re thinking of getting into NFT anytime sooner, you should thoroughly read and understand this part of the article. Being a new sector, NFT has got lots of issues that need to be settled and resolved.
Copyright infringement issues
An entirely new term in NFT, isn’t it?
Let me explain to you what it means.
The term copyright infringement refers to the usage of work (digital content here) that is protected by copyright law without any permission. Here, to use such work, one needs to get permission from whomsoever owns it.
For instance, below is a product of creativity from Beeple.
This picture projects the 45th President of the U.S., Mr. Donal Trump, in a compromising position. This art, its artist, and the owner of this Non-Fungible Token (NFT) would never be away from the infringement lawsuit from the Trump Family.
My point here is that even though the whole blockchain thing is maintaining its distance from the regulatory authorities, one should always consider the law before making any purchase towards an NFT. Originality of the Art NFT does maintain an ownership ledger of a digital asset linked to an NFT, but it cant prove the authenticity of it. Let’s have a look at an example for you to better understand what I’m saying. Suppose the original Guernica is being sold online as an NFT. Here, the NFT will only hold the details of the painting and its owner. It does not show how authentic it is. The buyer needs to research and identify if the painting is real or not.
Digital art is more exposed to being plagiarised.
Here, one must not think that all things are plagiarized, but it’s good to be careful.
Also, you might be thinking that id mentioned NFTs being fully secure and encrypted. And they are encrypted, but they only encrypt the ownership details of an asset. They do not encrypt the digital asset (I’d mentioned details, not a digital asset).
And further, heaven forbid, if you’ve been scammed in purchasing a fake digital asset, there’s no law in place to protect you. Low Liquidity in Secondary NFT Marketplace The secondary marketplace for NFTs is currently in development and may take a few years until its fully functional. Hence, an NFT comes with inherently low liquidity.
These are the limitations that the NFT community will be liable to face and overcome in the coming years.
But, in my view, all of these limitations are negligible comparing the development and innovation happening in this space.
Let’s have a look at some amazing projects in the field which will surely get all the negatives about NFT out of your mind. Projects that can be looked at in the NFT marketspace The crypto market, no doubt, is flooded with NFT projects. However, here are a few top-rated ones that surely will change the future of NFTs.
Decentraland (MANA)- A Decentralized Virtual World
Enjin (EJN)- Integrated Digital Products
Raible (RARI)- NFT Marketplace
Why are people buying NFT?
During this pandemic time, when everything outside is closed with everyone sitting in their homes, NFT is a good way to sell and buy digital content.
NFTs are new, trendy, and very useful. Artists showcasing their art can easily sell it, and buyers can easily buy them, all from the comfort of their homes.
NFTs also contribute towards digitalizing the world and are a great option to praise art without having to go out.
NFT are a new invention in this tech-savvy world, which is only here to help us.
It makes the buying and selling process intuitive, which is why most people are buying NFTs.
Who can make a Non-Fungible Token (NFT)?
Resting an NFT requires a creative mind which can develop cool, trendy, and innovative digital content, just like you and I ;). So, if you’ve got that, you can, without doubt, make an NFT.
Yup! NFTs can be copied. It’s not necessary that you get authentic digital content every time, so it’s always good to have deep research about the item you are buying so as to save yourself from getting spammed. What is an NFT card?
NFT trading cards are nothing but virtual representations of their underlying asset. These cards, by being represented on the Blockchain, have been granted immutability and public verification of ownership. So, even if the physical version is lost or destroyed, the NFT will endure and live on the Blockchain for as long as the latter exists.
A virtual representation of these cards can be created by creating a token either on Ethereum or other smart contract blockchains. All of these tokens are non-fungible in nature and also contain the metadata about the card, especially its image. And these cards can even be stored, viewed, and transferred. How? Via an NFT-enabled wallet.
Now, is investing in NFT a good idea?
Looking at the booming market of NFTs, almost everyone wants to know whether its good to invest in Jack Dorsey’s first tweet or a street art.
Now that you’ve read the whole article about the new trend, what are your views on it? Will you be willing to invest in NFTs?
If you ask me, why not! I’ll be more than willing to invest in NFTs.
While investing in NFTs or not is a personal choice, one should always looks at the poditives and negatives of it at first.
The NFT market thriving at this point, with no signs of failure in the near future. And this seems convincing as you are only going to benefit from it.
Looking at all the points mentioned in the article, i guess NFT is an good investment. Its new, trendy and safe. And the most important thing is that it doesnt involve any government institution in it, making it a more free space for artists and buyers.
But again, before you invest in/ buy an item, make sure you do thorough research of it and you’ll be good to go.
That’s it for now, i really hope you understood NFT and all of its jargons. Let us know in the comments how you liked the article and any other suggestions for it. See y’all next time with another interesting topic!