NFT: What is It and Why is It So Popular

Date: 2022-06-09 | Time of reading: 9 minutes (1733 words)

NFT: What is It and Why is It So Popular

Today, there's a lot of buzz going around NFT. It's the word of 2021 according to Collins dictionary. And the popularity of the technology will continue to grow. The NFT market size reached $25 billion in 2021. According to forecasts, this number will reach $35 billion in 2022 and will increase to $80 billion by 2025.

NFT allows one to sell and buy digital objects for cryptocurrency. Digital property prices reach thousands and millions of dollars. The core target audience of NFTs are gamers, collectors and advanced investors. They tend to invest in NFTs rather than in stocks. The value of digital objects is growing, and NFT may soon replace documents in the real world.

In this piece you will learn what NFTs are, how they work, what they are for, where to create, sell and buy a digital work of art or a digital object.

What is NFT

NFT (a non-fungible token) is a technology that represents an entitlement its owner has to a digital object and confirms the uniqueness of a digital property. The concept came from the world of cryptocurrencies. Each NFT exists on a blockchain: a technology that records data in digital blocks in a certain order. Information on a blockchain can't be deleted or changed. Blocks are stored on multiple servers all over the world. It's almost impossible to hack a digital object on a blockchain.

A token is a blockchain element or a digital record that can be compared to securities and stocks in the real world. There are fungible, partially-fungible and non-fungible tokens (NFTs).

Let's look at examples.

Fungible token

If you borrow the US one-hundred-dollar bill from someone, and then recover your debt with another one of the same value, there will be no difference for the person from whom you borrowed. Although the bills are different (i.e. each one has a unique number), they are of equal value and can replace each other. Cryptocurrency works the same way in the digital world. Any bitcoin is equal to the same one because each has a fungible token.

Partially-fungible token

A train ticket you buy is not unique because other passengers have the same tickets that can be exchanged. However, each passenger has a seat number specified in their ticket. It distinguishes one ticket from another. In the digital world, this ticket would combine the characteristics of a fungible token (the passengers of this train can exchange their tickets with each other and still get to their destination) and a non-fungible one because each ticket has a unique seat number. Therefore, a train ticket with a seat number can be viewed as a partially-fungible token.

Non-fungible token (NFT)

If you buy a painting that is sold in a single copy, you can't replace it with a reproduction because it has its own characteristics. When a unique object exists only in the digital world, it is assigned a non-fungible token (NFT).

An example of an NFT that is adored by many people around the world is a game called CryptoKitties. There people buy digital pets with unique tokens. People breed NFT crypto cats and get new kittens. The blockchain code here functions as a genetic one: all new cats will be unique.

CryptoKitties

How the NFT Technology Appeared

The technology appeared in 2017 on the basis of the Ethereum cryptocurrency smart contracts. Smart contracts are agreement codes between a buyer and a seller and a way of using an object. In the digital world, a token performs the function of a signature.

Initially, the NFT technology supported blockchain art: it protected the copyright of unique content. It is difficult to find out who the real author is in the digital world. For example, a JPG image of a cat doesn't differ from its copy. When you copy an image, it loses its uniqueness and the author remains unknown unless users don't specify their name under each post. If an image has an NFT, the copying history is saved and each user knows its author and owner.

The first transition of a real work of art into the digital world became a performance. Injective Protocol bought Banksy's stencil «Morons (White)» created in 2007 for 95 thousand dollars. The work was burned, and only the virtual version in the form of an NFT was left.

Morons

Now, not only paintings, but also author's images, GIFs, music, photos and videos, game items can have an NFT. Even real-world objects can have it: cars, real estate. Perhaps in the future there will be no need for paper documents because NFTs will replace even passports.

How to Create, Sell and Buy NFTs

How to Buy an NFT

First, you need to choose a platform. NFT platforms trade digital objects in cryptocurrency, sometimes in dollars. Examples of platforms: Juggerworld, Treasureland, Blockparty, Nfty Gateway, Rarible, OpenSea, NFT STARS, NFT-X and others.

A buyer receives a digital certificate with unique blockchain data and stores an object on any device: smartphone, computer, flash drive. The object itself remains in IPFS (Inter-Planetary File System). Other users will be able to download and view the object, but only one user will have the private key (certificate). The owner has the right to issue public keys to users when copying to confirm the authenticity of the object.

How to Create an NFT and Sell It

You can use one platform for creation and sale. The user needs a crypto wallet to pay the platform commission (sometimes there's no commission) and the object itself. The owner uploads the content to the platform and sets the price.

NFT is created in one of the blockchain formats: ERC-721, ERC-1155, ERC-998, EIP-2309 and others that NFT platforms have.

An NFT author has the right:

  • To limit the number of copies.
  • To receive royalties from each sale (sometimes this process is automated).
  • Not to prove copyright, which is registered in the blockchain.

What are NFTs for

Authors can earn money from their content

Usually authors promote the platforms with their content. In return, they get advertising and virality, but not money directly. With NFT, the author will receive royalties when someone uses their content.

Copyright protection

Before NFTs, it was necessary to specify the author's name on their creations. The method worked poorly, the author's name was often lost. The creator of the object, the current owner and the resale history are recorded in the blockchain.

Replacement of digital documents and tickets

With NFTs, ownership of real estate or a car is confirmed with a token instead of a paper document. The technology is also used to sell tickets to events. The difference between ordinary e-tickets and documents and NFTs is in the degree of protection: NFTs can't be forged and stolen.

Content interactivity

NFTs make media content interactive allowing the user to take part in its creation.

Example. Creators of comedy series The Gimmicks distributed free tokens that users use to vote for plot development options. Also, users receive a unique NFT character from the series and even become assistants in the production team.

Investment

Buying digital objects is a profitable investment. NFTs are getting more expensive, digital objects are being resold for impressive amounts of money, but still it's impossible to say for sure the price of which NFT will skyrocket in the future. Not all NFTs are valuable: it depends on the author and characteristics. For example, Elon Musk put up for sale his tweet in the form of an NFT. The price of the item at auction exceeded one million dollars.

Elon Musk put up for sale his tweet

Examples of NFTs

Some NFTs become famous all over the world, not just among collectors. Such objects are sold at famous auctions Christie's and Sotheby's. Sometimes NFT art seems primitive, but even simple images can cost millions of dollars. Below you will see a few examples of digital objects that cost like millionaires' yachts.

CryptoPunks

This is an example of a very simple but expensive NFT. Only rich collectors can afford these unique pixel avatars.

CryptoPunks

A collection of nine rare CryptoPunks images was sold for almost $17 million at Christie's.

CryptoPunks

The First 5000 Days

Artist Beeple published a new work every day for 13 years and then combined all the images into a collage of 50000 thousand elements and sold as NFT at Christie's. The image is called The First 5000 Days because the author decided to create a new picture every day for the rest of his life. The collage with the first days costs $69 million.

The First 5000 Days

World Wide Web source code

English scientist Tim Berners-Lee created a token for the source code of the Internet, which he invented in 1989. The cost of this NFT at Sotheby's is $5.4 million.

World Wide Web source code

Campbell's Soup Can

Andy Warhol's famous painting of Campbell's soup cans also turned into an NFT. The work called «Untitled (Campbell's Soup Can)» was sold at Christie's for $1.1 million.

Campbell's Soup Can

Transition by Pokras Lampas

Calligrapher Pokras Lampas digitized and sold for $29,000 an NFT photo depicting a projection of his work at the Chirkeyskaya hydropower plant.

Transition by Pokras Lampas

Nyan Cat

Creator of Nyan Cat meme Chris Torres made a token out of the Internet-famous cat and sold it for more than $560 thousand dollars.

Nyan Cat

Conclusion

NFT (a non-fungible token) is a blockchain-based technology that confirms the uniqueness of a digital object, protects copyright and keeps the history of changes and resales.

It's impossible to support NFT, but it's easy to create one. A digital object is uploaded to one of the NFT platforms and the price is indicated in cryptocurrency (sometimes in dollars). With the technology, people sell works of art, images, music, GIFs and even game items. NFTs even replace paper documents when buying real estate or a car.

This technology allows content creators to receive royalties. NFTs are also an alternative to conventional investment. Digital objects are growing in price and are often sold at auctions for thousands and millions of dollars.

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Author: Lyudmila Kovalenko

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