Ethereum is an ever-evolving platform. New protocols or standards are introduced frequently. Few of them are revolutionary that transcends beyond the Ethereum platform. One of them is ERC721 or, as many know it, NFT.
NFT stands for Non-fungible Token. What does the non-fungible means? This means each token is unique and cannot be divided. You can think of it like a concert ticket. Your Ticket for AC/DC concert is unique because nobody else has the same ticket for the same seat and date. You cannot divide your ticket i.e. replace your ticket with two smaller ones like you can do with money. Swapping $100 Dollar bill for 5 $20 is possible, and both represent the same amount of money. Something like this isn’t possible with tickets or NFTs. These are non-fungible assets.
As with many other ERC Tokens, you can also buy NFTs with cryptocurrency on different exchanges. An NFT can represent a digital asset that you can hold in your wallet as part of your collection or portfolio.
But what does NFT represent? In simple terms, NFTs are cryptocurrencies meant to describe things like art, real estate, in-game assets, limited edition goods like handbags or cassette tapes. Unlike tokens like BTC, and ETH, which are meant to be interchangeable and used like currency, NFTs are meant to be unique.
The Art Problem
In recent months, the most popular NFT use case that the majority of users in crypto and outside of crypto had stumbled upon is crypto-art. It comes in various forms, like GIF-art, animations, digital paintings, 3D models, music, and more. The first popular NFT was CryptoKitties at the end of 2017, where you could buy a 2D cat that you can breed with other cats and sell new ones to other users.
NFTs and Ethereum solve some of the problems that exist in the internet today. As everything becomes more digital, there’s a need to replicate the properties of physical items like scarcity, uniqueness, and proof of ownership. Not to mention that digital items often only work in the context of their product. For example, you can’t re-sell an iTunes mp3 you’ve purchased, or you can’t exchange one company’s loyalty points for another platform’s credit even if there’s a market for it. NFT and Blockchain solve this problem.
What have brought NFTs to the normal world was mainly digital art. It was the first time in history that creators could share, sell and gain revenue from their art. Content creators see their profits and earning potential swallowed by platforms. Having a way to distribute and sell content/art directly to the users is something that wasn’t possible before. Plus, artists hand over the ownership of the content to the users, not the platform that we’re seeing right now. Ownership is baked into the content itself.
When creators sell their content, all the revenue goes directly to them. They can even program into an NFT a royalty program so when the art is sold further down the line, original creator can automatically receive royalties. This is guaranteed every time it’s sold because of the very nature of NFT and smart contracts the NFT is built upon.
There are many potential use cases for a non-fungible token that lives forever on the Blockchain. As said before, NFTs can be used for selling any art, from Digital paintings, to 3D models, GIFs, Music, Videos etc. It can also be used for the gaming industry where in-game items could be tradable on DEXes and sold. All the hours spent in World of Warcraft could finally pay off.
There is also a use case for authentication for tracking and tracing items. Helping proof the ownership of an item or simply digitalization of physical assets.
I will cover all of the above use cases in the next article; as you can see, there is a lot to cover.
In the meantime, if you can’t wait to learn more, you can read Certik’s article on 101 of NFTs.
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