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Non-Fungible Tokens — Everything You Need to Know About NFTs

Non-Fungible Tokens — Everything You Need To Know About NFTs

Are you looking for a guide on everything you need to know about non-fungible tokens (NFTs)? Then you are in the right place. In this CoinQuora article, we will learn what are NFTs, how do NFTs work, various NFT use cases, and the best NFTs today.

The NFT ecosystem has experienced a historic boom during 2020, with its market capitalization hitting beyond $300 million. Hence, it is now a value-generation industry.

In retrospect, the NFT industry made headlines before the end of the 2020 crypto bull run. Since then, decentralized finance (DeFi) and NFTs’ early initiatives become more visible to crypto users and traders. As a result, NFTs are expected to play a huge role in the expanding cryptocurrency market.

What is a non-fungible token?

A non-fungible token (NFT) is a unique digital token created using blockchain technology. NFTs represent a wide range of tangible and intangible items. What makes NFTs beneficial is it ensures digital ownership, as well as hold real-world value.

In reality, we already have a lot of non-fungible digital assets. These include airline mileage points, in-game items, event tickets, Facebook and Twitter social handles, and many more. We own these by context, but we don’t own them fully.

When it comes to digital ownership, NFTs are the most favorable solution. Due to blockchain, a coordination layer for digital assets is provided. Thus, giving users full ownership and management of their assets.

NFTs have individual characteristics, making them unique, rare, and indivisible.

Moreover, NFTs are built on smart contracts. These contracts contain specific information that makes each non-fungible token different from one another. In this way, no NFT is similar to any other NFT. Hence, these cannot be interchanged and broken down into smaller units.

Generally, NFTs represent the expanding digital resource economy. It is where users can prove ownership of goods — physical or virtual — via unique digital tokens recorded on the blockchain. Many types of NFTs are existing today such as art, collectibles, gaming, metaverses, sport, and utilities. More explanation on each NFT use case below.

How do non-fungible tokens work?

Non-fungible tokens can represent a unique object, a virtual land, a piece of art, or a digital artifact. In fact, what each NFT represents is all cryptographically-programmed to be unique, whereas cryptocurrencies are created equally. Hence, non-fungible tokens are each unique and limited in quantity.

Standardization

Generally, those who want to create NFTs can use the Ethereum blockchain. Common non-fungible token standards are ERC721 and ERC1155. In comparison, the blueprint for fungible tokens is ERC20. With thousands of ERC20 tokens in the market, these digital assets are commonly used by crypto projects for governance, fundraising, payments, and others.

By and large, developers can build common, reusable, inheritable standards relevant to all non-fungible tokens. These include ownership, transfer, and simple access control.

ERC721 is the first standard for representing non-fungible digital assets. In detail, ERC721 is an inheritable Solidity smart contract standard that provides a mapping of unique identifiers to addresses. Moreover, it also follows a permissioned way to transfer these assets.

ERC1155 brings the idea of semi-fungibility to the NFT world. With this token standard, IDs represent not single assets but classes of assets. Thus, by using a single smart contract to represent multiple tokens at once, this approach can be more practical and cost-effective. There’s no need to deploy a new contract for each token type. Instead, a single ERC1155 token contract can hold the entire system state to avoid complexity.

Interoperability

The issuance of NFTs allows for a higher degree of interoperability. This will certainly benefit the crypto users holding them. It basically means that unique digital assets can be transferred between different applications seamlessly.

To explain further, non-fungible token standards allow NFTs to move easily across multiple ecosystems. Therefore, when a developer launches a new NFT token project, these NFTs are immediately viewable on supported wallet providers, tradeable on open marketplaces, and, visible inside virtual worlds.

At present, there are still many works to be done in achieving true NFT cross-platform interoperability. By definition, interoperability means the assets can come from any game or from multiple chains. Soon, different blockchain-based virtual worlds can enable specific assets to function within their environments.

Tradeability

Non-fungible tokens can be bought, sold, and traded on top NFT marketplaces like OpenSea, Rarible, SuperRare, and Axie Marketplace. These markets connect buyers with sellers, making the value of each token unique. Similarly, NFTs are prone to price changes in response to the market’s supply and demand.

Without a doubt, the ability to be traded freely on open marketplaces is one of the most attractive features of NFTs. You and I can now move items (either physical or digital in nature) into marketplaces where we can take advantage of trading opportunities.

Particularly for game developers, the tradability of assets represents a transition from a closed economy to an open, free-market economy. As a result, game developers no longer have to manage every piece of their economy. Instead, they can let free markets have a say.

Liquidity

The tokenization of real-world assets could introduce some well-needed liquidity to these markets. In this way, previously untapped revenue streams are opened. Fine art, real estate, and rare collectibles are just some of the most liquid and profitable NFTs.

Moreover, the instant tradability of non-fungible tokens will lead to higher liquidity. Taking this into account, NFT marketplaces can cater to a variety of audiences — from hardcore traders to more novice players. As a result, a wider pool of buyers has greater exposure to the assets.

Similar to how the ICO boom of 2017 gave birth to a new asset class, NFTs expand the market for unique digital assets. NFTs truly offer investors additional liquidity over their assets when they need it.

Immutability and Provable Scarcity

NFTs are provably scarce assets. What does this mean? To put it simply, each non-fungible token contains a code that indicates its specific digital identity. Hence, creating unique digital goods can be used to represent rare physical assets with a trackable history of ownership.

Scarcity is an important aspect that makes NFTs special. While developers have the freedom to generate an infinite supply of certain assets, they also have the power to limit their number in existence. Broadly speaking, the possibilities for exclusive and rare items that can be traded are endless.

As all NFTs are created on the blockchain, it is immutable in nature. Smart contracts allow developers to enforce persistent properties that cannot be modified after issuing NFTs. In this way, properties do not change over time by encoding them on-chain.

Non-fungible token use cases

While the market size of NFTs is still quite small compared to the trillion-dollar worth of Bitcoin, NFTs are expected to bring about new changes to not only the collectibles industry but also the blockchain world in the years to come.

As a matter of fact, people give emotional and aesthetic value to items. Thus, they are willing to pay a lot of money for them. Yet, on the Internet, almost anything can be easily copied, shared, and stolen. Blockchain technology works to resolve that.

NFTs rely on the blockchain to designate an official copy of a piece of digital media. This allows artists, musicians, influencers, and sports franchises to sell authentic tokenized assets. When you buy an NFT, the transaction becomes a permanent public record, serving as a sort of certification of authenticity. This cannot be altered or erased at any point.

Art

Protecting copyrights can be a nightmare for digital artists. Through NFTs, someone can create digital art and proudly showcase it in a virtual space for buyers. No intermediaries and unnecessary costs and processes involved. Moreover, with blockchain, both the artist and buyer have true proof of ownership.

Although non-fungible tokens (NFTs) are a way to prove ownership of digital art, the cool image or video the NFT owner has doesn’t actually live on the blockchain. Instead, the NFT refers to a file that sits somewhere else on the web. Thus, if the file is stored at a traditional web address and taken offline, the NFT owner may experience some trouble.

Collectibles

As we’ve seen with the CryptoKitties craze, NFTs are being used to create entirely new types of collectibles. To point out, it’s even possible to buy tokenized versions of your favorite celebrities or sports stars. Not to mention digitizing traditional collectors’ items such as baseball cards, coins, and stamps.

Various NFT marketplaces now allow fans to own, share or trade digital items in a manner similar to physical trading cards or collectibles. Moreover, brands can easily license and monetize limited edition, rare, and exclusive digital assets based on their intellectual property (IP).

Gaming

Current gaming platforms are in for a treat with NFTs. The modern shift in power to the gamer means game developers need to up their game. Accordingly, the broader success of gaming DApps will likely play a role in further catalyzing NFT adoption.

NFTs will certainly change the way we play. Gamers will trade more NFTs, and blockchain gaming will pave its way further into the gaming world. To illustrate, Pteria DAO is an innovative project that focuses on the relationship between gaming and the NFT world.

Metaverses

In a nutshell, a metaverse is a digital world where anything we can imagine can exist. These can interconnect different technologies like virtual reality (VR), augmented reality (AR), blockchain, and cryptocurrencies.

In order for digital items to have real and lasting value, they must exist independent of an entity. This is possible with NFTs. In line with this, the decentralized nature of NFTs will make the metaverse an open ecosystem.

Sports

Sports leagues such as NBA have millions of fans and followers. This can be seen not only in the real world but as well in the digital space. Thus, to create further engagement with fans, mintings NFTs are now being explored.

Dapper Labs has created NBA Top Shot which allows basketball fanatics to own collectible and game highlights through NFTs. As more and more NBA players and fans want to get their hands on their moments, the more legitimate Top Shot will be in the future.

Where can I buy non-fungible tokens?

According to Nonfungible.com, the market for NFTs began to surge in 2020, with more than 200,000 people participating in $250 million worth of sales. As day trading has risen alongside the stock market in the pandemic, investors have looked for other ways to make money.

Did you know?

Nyan Cat, a famous meme of an animated cat with a Pop-Tart body, was sold for roughly $580,000.

Buying an NFT — whether it’s a collectible, a work of art, or a video game asset — is a great way to monetize. It is also an opportunity to create a bond with other users who share the same passions. In particular, the expansion of communities with a common interest is vital to the mass adoption of NFTs.

Here are the biggest NFT markets to buy your favorite tokens, gaming items, and art:

OpenSea

OpenSea is the biggest peer-to-peer marketplace for cryptocurrency goods. Here, the blockchain secures collectibles, game items, and other virtual goods. On OpenSea, anyone can buy or sell these items securely.

How does it work? It’s simple. Jplug in a Web3 wallet like MetaMask and go to the Browse tab.

The application will automatically search your wallet for all the collectibles you have and the assets (ETH, DAI, etc.) you need to buy items in the marketplace.

WAX.io

Another large and highly active NFT market is Wax.io. Here, you can mint your own NFTs easily as well as buy, sell, and create auctions. Known as the “King of NFTs,” its new tokenomic model enables earning rewards in the form of Ethereum and WAXG governance tokens.

How does it work? Simply create a WAX Cloud Wallet (WCW) account with a username and password. On the other hand, you can even use your social media account like Twitter, Facebook, or Reddit. After this, you can start buying, selling, and trading WAX-supported NFTs.

Best non-fungible tokens

With thousands of NFTs now in the market, below is the best non-fungible tokens list for early 2021. These top 10 non-fungible token projects have a cumulative volume of over $200 million.

Best non-fungible tokens
Source: NonFungible

CRYPTOPUNKS

CryptoPunks are 10,000 uniquely generated 24×24 pixel art images. Most are punky-looking guys and girls, with apes, zombies, and aliens in the mix. Any person can own each one of them through the Ethereum blockchain. At the time of writing, the lowest price punk currently for sale is worth 22.5 ETH (~$36,779.40 USD).

HASHMASKS

Hashmasks introduces blockchain-based digital art collectibles. Both artwork creators and buyers determine the value hierarchy. Naming is commoditized with the Name Changing Token (NCT). Current Hashmask art holders accumulate 10 NCTs per day.

SUPERRARE

SuperRare is a peer-to-peer marketplace where you can collect and trade unique, single-edition digital artworks. On the platform, users can see the top collectors and trending artists, along with the quantity of their created/bought pieces and spent/accumulated ETH. The creator earns a fee — similar to a royalty — for every NFT reseller.

ART BLOCKS

Art Blocks is a unique generative art platform. Here, you can pick a style that you like and pay for it. Right after, you will receive a randomly generated version of the content. To date, the platform released 13 curated projects and 6 uncurated projects, including the founder’s Chromie Squiggle.

SORARE

Sorare is a global fantasy football game. Here, you can play with officially licensed digital cards and earn prizes every week. There are currently 126 clubs officially licensed in the game. For the 2020-21 season, there are three categories of Sorare Card: Unique, Super Rare (10 copies), and Rare (100 copies).

MAKERSPLACE

MakersPlace is a venue where you can discover and collect truly unique digital creations made by the world’s most creative minds. Upon purchase, you can access the high-resolution digital file and display it on any digital device or even print it out for personal use.

AXIE INFINITY

Axie Infinity is a decentralized collectible game that’s been growing since 2018. Interestingly, the concept of raising pet Axies and battling in-game made Axie Infinity surely one of the actively-played blockchain games of today. One Axie is approximately worth $34.51.

CRYPTOKITTIES

CryptoKitties is the main contributor to NFT’s fame. Here, users can breed and collect Kitties as well as compete in leaderboards and participate in literal catfights. When breeding any type of Kitty, you must pay a set fee of 0.008 ETH. In addition, lower generation Kitties are more valuable than higher generation ones.

CRYPTOVOXELS

Cryptovoxels is an Ethereum-powered virtual world where players can buy land and build stores and art galleries. If you want to try and build, you can purchase a parcel of your own and build on that; build on one of the available sandbox parcels; or use a free editable non-grid space.

THE SANDBOX

The Sandbox is a community-driven decentralized platform where users can build, own, and monetize their gaming experiences. The SAND token is the native currency in this metaverse. Thus, SAND holders can buy and sell LANDS and ASSETS and also participate in governance.

Conclusion

The non-fungible token industry is a relatively young sector. Thus, NFTs still have a long way before going mainstream. With their potential, NFTs can generate sufficient interest and value to follow the steps of bitcoin and other altcoins.

In fact, it can actually deliver an appreciable return on investment, as well as give the average investor an opportunity to access fractional investments in digital assets. Overall, there is a lot you can do with NFTs. You can buy, sell, and trade it on a marketplace or other people. Otherwise, you can use it in a decentralized app or better showcase it in public.

Being another promising asset class powered by blockchain technology, NFTs can revolutionize a lot of sectors in society. Sooner than later, more non-fungible token use cases will emerge and non-fungible token projects will be more in demand than ever.

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An aspiring journalist who spills her ideas in cryptocurrency and blockchain-related matters. With her background in Communication and Journalism, she is more inclined to write about reality than fiction.