As we all know, NFTs or non-fungible tokens are the thing now and are booming like crazy! Celebrities purchase them, collect them, and sell them. Preteens are making fortunes off them, crazy right?
So what is an NFT?
An NFT can represent a specific digital asset that holds value and is the digital certificate of ownership over it. As a non-fungible blockchain entity, it represents an asset’s rarity, uniqueness, and authenticity.
What should you know about them?
Let’s dig in!
- NFTs are limited in supply and unique.
An NFT represents a unique item that no one can duplicate, and they come in limited supply. Just like the painting of the Mona Lisa and a photograph of that painting, they’re not the same, right? On the other hand, the fungible crypto-assets, like ETH, or MATIC, typically exist in a bigger supply.
- There are different types of NFT standards.
NFT standards are the underlying principles describing how NFTs function on a particular blockchain protocol. When they first emerged, the underlying benchmark for all NFTs was ERC-721, which is still the most popular NFT standard. However, today, additional standards serve a wide range of purposes.
For example, Ethereum also has ERC-998, ERC-1155, and ERC-3664 standards.
- ERC-998 tokens can be organized into elaborate digital assets. They can be valued, traded, or sold as a single entity.
- ERC-1155 allows users to register NFTs and fungible tokens in the same smart contract.
- ERC-3664 tokens are modular and can be combined, taken apart, or put together in an unlimited number of ways.
- NFTs exist on almost every blockchain.
Many consider Ethereum the only NFT-friendly blockchain, but that’s not true! Nearly every blockchain supports NFTs, and some are even designed specifically for digital collectibles and games. Such as Flow, Tezos, Polygon, Solana, Avalanche, Binance Smart Chain, WAX, Waves, and Tron.
- The underlying blockchain of the NFTs can be environmental disasters.
NFTs are not the most eco-friendly thing in the world, even though they save a significant amount of trees not using paper, mainly because their underlying blockchain might still require much energy to operate. Fortunately, the crypto world is working hard to find solutions, and new protocols are popping up every day.
- Ethereum will soon become 98% more energy efficient with PoS.
Ethereum, Bitcoin, and other blockchains are built on a ‘Proof-of-Work’ (PoW) system to secure the users’ financial data. PoW uses a competitive validation method to validate transactions and add new blocks to the blockchain. Although being a highly secure mechanism, it requires users to expend a lot of computational energy and cause high greenhouse gas emissions.
With the upcoming Ethereum 2.0 upgrade, Ethereum will move from the PoW to the ‘Proof-of-Stake’ (PoS) consensus, ensuring 98% more energy efficiency. It requires validators to put a certain amount of cryptocurrency as collateral for the opportunity to approve transactions successfully. These users have to ‘vote’ to approve legitimate transactions and gain rewards in the newly created cryptocurrency over time. It eliminates the need for robust computing equipment that consumes massive amounts of electricity.
- NFTs are not exclusively .jpeg files.
NFTs popularity has grown as being digital art collectibles, but they can be many other things. They can represent ownership of a music file, trading card, utility item, identity card, or access key. In video games, they can represent in-game items such as avatars, skins, or swords, that players can use, buy, or sell. They play an essential role in creating virtual worlds in the metaverse. They also represent land plots on platforms like The Sandbox and WorldWideWebb.
- NFTs can be interoperable.
Interoperability is the ability for contrasting systems and entities to interface seamlessly, which is one of the endorsed qualities of NFTs. NFTs usually have utility in one product but can also be used in others.
Digital ownership can be transferred from one context to another, because BLOCKCHAIN! This way, projects can use NFTs owned by others to grant the NFT owner some sort of benefit in the project.
- NFTs can cost $1 too, not necessarily $1 million.
Although the mainstream media sheds the spotlight on NFT sales that generate millions especially in crypto art, NFTs can vary in price and can be very cheap. The price difference is attributed to many factors, including the utility and quality of the project, data size, gas fees, transaction speed, etc. That said, the overall cost of an NFT is typically determined by its rarity. Prices can skyrocket based on the law of scarcity.
- You get private keys to your crypto wallet where you store your NFTs.
This is where NFTs are similar to bitcoin, ether, and any other cryptocurrency – you store them in your crypto wallet and you need to have private keys to carry out any action with your NFTs like signing transactions and decrypting data. This key needs to be kept secret at all times; otherwise, third parties could gain access to your assets, just like a safe box!
- The NFT metadata is usually stored on the blockchain, while its visual data often ends up in the IPFS.
An NFT itself contains very little data, except its metadata in the form of a JSON document. This data typically includes the NFT’s name, description, traits, and the link to the hosted image. In other words, the actual artwork is still one link away.
But there’s a problem with links. When the visual data of the NFT you purchased is stored on a centralized server, the link to it can easily break. That can happen if the company hosting the server shuts down or moves to another domain.
For this reason, many NFT creators turn to the IPFS (InterPlanetary File System). Instead of identifying a file at a specific domain, this system allows you to find a piece of content if someone is hosting it somewhere on the IPFS network. Multiple hosts (instead of just one domain owner) guarantee these files stay online. IPFS also gives the buyer control – they can pay to keep the file online, as long as they remember to pay the hosting bill.
We all can see and realize that NFTs are more than just a trend and they’re here to stay for many reasons, such as they’re a great source of income, they create new possibilities for digital artists, they change the way video games are played, and many more.Make sure you check our blog regularly and follow us on Instagram for more NFT and music marketing-related updates.
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