Satoshi Nakamoto certainly never imagined that the world would buy digital, collectible CryptoKitties, Punks, celebrity music, and so on when he created Bitcoin in 2009.
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All of the above, on the other hand, relied on a brand-new Ethereum standard for identifying unique assets on its blockchain: the ERC-721, also known as the solution for the creation and transfer of non-fungible tokens.
The following points about non-fungible tokens are addressed in this article:
- What is a non-fungible token?
- The 3 characteristics of NFTs.
- How do they work?
- 5 top NFT marketplaces.
- What you’ll need to get started with NFTs?
- 5 popular use cases.
What is a non-fungible token?
An NFT can be defined as a cryptographic token that uniquely identifies an asset. It can represent both digital assets, such as an image, as well as real-world assets, such as a house or automobile, or even a song. Because you can identify assets in a unique way, you can also show ownership over them and, more importantly, their authenticity.
Regular tokens issued according to the ERC-20 standard have the disadvantage of being divisible and interchangeable. We don’t want to use this attribute to keep track of unique assets. Any ERC-20 token can be swapped out for another ERC-20 coin. ERC-721 addresses this issue. As a result, each NFT token represents a unique asset that cannot be exchanged for another.
To make it easier, let’s look at an example of fungibility. For digital currencies like Bitcoin, the fungibility property is especially important. This enables people to freely trade Bitcoins with one another, regardless of which Bitcoin they own.
When it comes to digital assets, however, fungibility means that users can freely trade them and that we can’t prove ownership because they can be exchanged for any other asset. If we wish to uniquely identify assets, this is a problem. As a result, NFTs were created.
The 3 characteristics of NFTs
NFTs cannot be divided. You can, for instance, own a complete bitcoin. If you don’t have enough money to buy a whole bitcoin, you can split it into smaller amounts and buy a tenth of one. Bitcoin’s denominated units are known as satoshis.
To build on this, you don’t want people to be able to purchase 10% of a rail ticket. To put it another way, if Bitcoin had non-fungible properties, you could only acquire a whole bitcoin.
We’ve already talked about how important it is to be unique. NFTs allow you to characterize an asset in a unique way by giving metadata that describes it and distinguishes it from other assets.
Decentraland, for example, is an initiative that offers virtual land. The metadata comprises virtual coordinates and land attributes, such as the proportion of land covered by grass or the number of structures on the property, to uniquely characterize each piece of land.
The popularity of NFTs is due to their scarcity. Token creators can freely define the token’s boundaries with a typical ERC20 token. Let’s imagine you desire a one-million-token supply. That is possible. Are you interested in receiving extra tokens? Just raise your smart contract’s total supply (different algorithms put different rules on that possibility or prohibit it entirely).
It is impossible to build new assets indefinitely using NFTs. NFTs are so popular among collectors because scarcity ensures that each asset can only be defined once on the blockchain.
In other words, scarcity gives value to NFTs as long as people are willing to pay for them.
How do they work?
As previously stated, Ethereum established the ERC-721 standard, which allows developers to create unique assets. It was completed on January 24, 2018, and it describes the functions that Ethereum contracts must follow in order to comply with it. The ERC721 metadata contract, on the other hand, is considerably more fascinating for us because this is where the true magic happens.
For the NFT we want to define, we can specify both a name and a symbol. We must also give a URI that points to a JSON file that describes the NFT’s unique properties. A JSON file is another form of data notation where we keep track of properties such as name, description, and image URL to further define the NFT.
5 top NFT marketplaces
- OpenSea (https://opensea.io/), the first and largest peer-to-peer platform for crypto-collectibles
- Rarible (https://rarible.com/), a marketplace that allows you to quickly create and list your own NFTs
- SuperRare (https://superrare.com/), a selective marketplace where artists must be invited to list
- Axie Marketplace (https://marketplace.axieinfinity.com/), where Axie Infinity game assets can be bought and sold
- Crypto.com NFT (https://crypto.com/nft/marketplace), an NFT auction site that allows you to list existing NFTs or mint new ones to list
What you’ll need to get started with NFTs?
Whether you just want to play around with NFT marketplaces or want to code, create, and deploy your own unique NFT smart contract, you’ll need two things:
- Metamask – You may get a MetaMask wallet via https://metamask.io.
- Ether – Ether is the “currency” you’ll need to conduct transactions. Popular crypto exchanges, such as Coinbase (https://www.coinbase.com), offer Ether.
3 popular use cases
NFTs have been used in a variety of sectors. Let’s look at some of the most well-known projects that employ this technology.
Digital art: This industry has fetched some of the greatest values, and it also symbolizes the first NFT application, which can be traced back to Kevin McCoy’s “Quantum” (minted in 2014). There are numerous platforms now available that allow anyone to create an NFT of their digital art.
Music: Artists can now tokenize their music and distribute it directly to their audience. In many cases, fans can get access to special content and artwork that they won’t be able to get anyplace else. DJ and producer 3LAU famously sold $12 million in NFTs in February of 2021. A unique song, access to never-before-heard music, original artwork, and new versions of current songs were among the offerings.
Gaming: In-game assets (such as digital land, skins, and characters) are a perfect fit for NFTs, with the largest sales volume of any area within the digital collectibles category.
In the end, the value of an NFT, like any collector item, is determined by how much money one is willing to pay for it. The object’s value isn’t inherent in it; rather, it is assigned by individuals who think it is valuable. Value is, at its core, a shared belief.