Non-fungible tokens are unique blockchain-based digital assets that are revolutionising and redefining the market. Dive into the web3 space and learn more about the new concept in technology.
Jun 14, 2022, 11 minute read
We are aware that the lack of privacy and the dominance of large companies are one of the biggest difficulties of today's internet. It is the third generation of the internet or "web3" with an emphasis on decentralization that brings many benefits and solutions. Based on blockchain technology, web3 wants to restore privacy and control to people and enhance digital security. Therefore, it introduces the concept of unique ownership of property that can be digital or physical and is impossible to manipulate.
Unique ownership on web3 is realized through the new concept in technology called Non-Fungible Token or just NFT.
A token can virtually represent anything. Tickets for concerts or events, points in a computer game, ballots, title deeds for some items, fiat currencies such as the euro or dollar, and many other things.
Tokens are divided into three categories.
Their main characteristic is fungibility, which is defined as “able to replace by another identical item" or simpler - each token is the same as the other. We have a lot of examples of fungible items in our everyday lives. The easiest analogy and example that we can take is currency. Let's say you have a 10-dollar banknote, and I have a 10-dollar banknote, if the two of us exchange banknotes, we will both still have a value of 10 dollars, regardless of the banknote's the year of issue, serial number, etc. This is the main feature of a fungible tokens.
These tokens are fungible but only when applied to a specific class. Imagine VIP class tickets and regular class tickets for some event. Each ticket is roughly fungible within its class, but you couldn’t easily and fairly swap a VIP class ticket for a regular class ticket. Also, note that fungibility is relative and subjective. Maybe the person with the same ticket got a better view of the event and won't change it even though you are giving him the same class ticket.
NFTs are primarily used to identify something or someone in a unique way.
To define NFT more specifically we can say that it is a digital certificate of ownership, which could be for any underlying asset. Because of this characteristic, it is ideal for platforms that provide collectibles, ballots, concert tickets, and anywhere where the uniqueness of ownership is required.
Currently most popular use cases of NFTs:
Digital proof of ownership is recorded and tracked on the blockchain. Let's quickly see what is a blockchain.
A blockchain is a decentralized, distributed, and public network that is shared among the nodes of a computer network. First, blockchain was conceived as a system for sending money between two parties without a central authority (the bank), so in a shorter and simpler way, we can say that it is a public database that stores transaction data and anyone at any time can read it's data. However, blockchain is not a standard database where data is stored in tables as SQL or collections as NoSQL.
The key difference between a typical database and a blockchain is how the data is structured. A blockchain as its name suggests stores data in blocks that are connected in a chain. These blocks are groups that hold a set of information. Blocks are linked together in a way that every block has a reference to the previous block. They also contain other metadata that is used for ensuring the credibility of the data they are holding. New information that comes after the last block is then compiled into a newly formed block that will also be added to the end of the chain if it passes validation.
One of the best use cases of blockchain technology is the signing of a contract between two parties for the sale of cars, houses, or lands. The reason is that when an agreement is signed between the two parties in the form of a transaction, that transaction with it's data as digital proof of ownership will be published on the blockchain, and because of the very nature of the blockchain once something is published there it remains there forever and it is publicly available. Hypothetically, if years later one of the parties complains about the malfunction of the contract in a very simple way, the original version of the contract can be retrieved and checked by searching the blockchain.
NFTs have a lot of advantages, however the main ones are their ease of creation, possession, validation and transfer.
Why is this ease of possession and transfer of NFTs important? If we look back at owning digital assets before NFT. We had ownership of an item, however, only in a particular context from which transfer and sale were very difficult and often impossible. Take the example of a skin or weapon from a computer game eg. Fortine. We earned this item and if we ever wanted to sell or give it to another person, we would notice that it is extremely difficult to transfer ownership of that item.
So before NFT, digital assets did not have a unique representation in the digital world. Some computer game presented its collectibles such as weapons, tools or skins in a completely different way from the system for selling tickets for events, or the system for storing and validating academic diplomas. A standard was needed to unite it all. Blockchain and NFT solve this problem through standardization. Such a standard allows easy transfer of NFTs between multiple different ecosystems or blockchains. It allows you to move items outside the original environment where they were created (such as games) and place them on the market where you can take advantage of trading opportunities, such as eBay-style auctions, bidding, and selling in any currency.
Currently, the most popular uses of NFT in the world are collections of unique images. Lately, we can often see on Twitter that users are increasingly posting their NFTs as profile pictures. They do this primarily as a presentation and more recently as proof of NFT ownership. How popular NFT collections are is shown by the fact that by January 2022, $5B were sold through the OpenSea NFT market.
As one of the biggest ideas of technology advancement lately, metaverse can be defined as a combination of multiple technologies, including virtual and augmented reality where users “live” within the digital universe. Metaverse in the simplest way can be viewed as MMORPG games like World of Warcraft or Final Fantasy IV. Some of the metaverse versions of these games are Decentraland, NFT Worlds, and Sandbox. Through these games, players can own, buy and sell digital real estate, artwork, and skins in the form of NFT, and explore the digital worlds.
The main idea of the whole metaverse is that users spend time, work, play, and stay connected with friends through various activities. From concerts and conferences to virtual trips around the world. Take for example the current situation where in order to attend a conference or a concert we have to go there physically. But in a couple of years, it is possible that we will no longer need to do this but will be able to be in any location in the world and virtually attend events. So the idea is to make our world as we know it today in virtual reality.
So far we have seen games that allow players who compete with each other to buy upgrades in order to gain an advantage over others. Metaverse introduces GameFi which combines decentralized finance (Defi) and non-fungible tokens (NFTs) with blockchain-based online games. Unlike mentioned "pay-to-win" online games, GameFi introduces a new “play-to-earn” model. This concept involves giving players financial incentives to play and progress through games. In some cases, this has allowed gamers to earn a full-time income by doing so. Through games like Axie Infinity and Aavegotchi, the play-to-earn (P2E) model has created entirely new virtual economies that reward users with assets like NFTs and in-game cryptocurrencies that can be swapped, sold, or borrowed. In addition, other games like Battle Racer help further utility by releasing car parts as separate NFTs. Users can then buy these parts to build their vehicles or sell them separately on secondary marketplaces like OpenSea.
If you’re wondering how to get started with NFTs, or with web3, here are a few tips.
Tips are divided into the following sections:
To interact with any Dapp or a decentralized application, you first need a crypto wallet. Think of it as a login/registration form that you must fill out before entering apps like Instagram, Facebook, and others. There are a lot of great tutorials on the internet on how to create a wallet. After you have made a wallet, you need certain funds, ie money. Due to its architecture, any change in the blockchain (such as a change in ownership of NFT) requires payment. Payment is made through one of the crypto tokens, such as Ether in the case of Ethereum. When you have the wallet ready, choose one of the NFT platforms for sale, such as OpenSea. Create a collection and generate NFT within that collection and put NFT up for sale. The key to sales is good marketing. Get involved in the crypto social world through Twitter, Telegram, or Discord groups and advertise your NFT.
The process is partly the same with minting NFTs. Prepare the wallet in the same way as mentioned above. When you have a wallet ready you can start investing. Choose the NFT you like best, artwork, gif, or collection. Find a marketplace, ie an NFT platform on which it is possible to buy the desired NFT. Once you buy the desired NFT you can now do whatever you want with it. You can keep it collectible or resell it. If you want to resell, also join the crypto social world through Twitter, Discord, or Telegram groups and follow the changes in the crypto scene and advertise your NFT. Notice when is the best time to put your NFT up for sale.
Nowadays, everything is moving towards digitalization and the online world. We use social networks for communication, and online services for ordering food, goods, and other things. Movies and series are watched through online services like Netflix, so more or less everything we do these days is online.
Digitization brings changes in property ownership, both digital and physical. Most objects in the physical world, such as cars and houses, have unique qualities and are not interchangeable. Back then there was a problem because these objects couldn't be represented as immutable on the internet. A few years ago people came up with the idea that blockchain and NFT could be used as a solution to this problem. And since these NFTs are simply data in a public database as we can look at the blockchain, anyone can check who owns them, or see how they have changed owners and also because of their unique standard owners can easily transfer ownership of them.
If you are ever interested in web3 development and start learning and working on it, keep in mind that you will be one of the few who are currently working on it. Statistics show that in 2020, there were 30k web3 developers in the world and 500k of those who tried this type of programming alone. Finally, the importance of NFTs and web3 is shown by the fact that more and more companies are integrating NFTs and decentralized applications into their business, resulting in web3 becoming the standard over the next few years.