Answering as many questions as possible concerning NFTs.
Since CryptoPunks became launched in 2017, NFTs have gone a long way since. They became so prominent that even sovereign states started to introduce regulations. As there are lots of questions concerning NFTs, we will try to answer as many questions as possible.
So, what’s an NFT?
Known as non-fungible tokens (NFT), NFTs are unique collectibles on blockchain. They’re stored on the blockchain, and they can’t be divided similarly to tokens on blockchain networks.
What are the attributes of NFTs?
Unlike fungible tokens, NFTs cannot be divided into the smallest pieces, thus so adding the term non-fungible token. People can’t share and divide their NFTs. To have a piece of a collectible, an NFT needs to be bought, representing a share of existing assets.
Same with blockchain, NFTs are immutable and are recorded on blockchain networks for all people to see through block explorers and nodes. Because every computer and node on a network has a copy of all the transactions, changing the ledger history becomes next to impossible with current technology. Even if the ledger becomes hacked, there would be no benefit to changing the ledger from scratch, and nodes would resist the change.
Being a fundamental aspect of NFTs, it also helps represent real-world assets. The history can be seen by owners and others from the network, and they can be verified when exchanging them. With the help of unique identifiers, NFTs are known to be authentic, unlike fungible token counterparts.
Thanks to bridges and custodial services provided, NFT collections can be taken to other networks. To take NFTs with the help of blockchain bridges, smart contracts can be used, or, custodial services that have infrastructure would provide services for NFTs.
Because no NFT is the same, they can’t be interchanged with each other. And because each NFT’s metadata is different, it also provides authenticity for collectibles.
Because NFTs are recorded on the blockchain, anyone with a computer, internet connection, or nodes can access everything about the collectible. Same with blockchain, public keys can be seen by everyone while private keys can be seen only by the wallet owner. As a private key is used to verify the message alongside with public key, the asset’s ownership can be verified.
Unlike fungible tokens on the blockchain, NFTs have considerably lesser supply. Because supply is an important factor, it became one of the most important factors determining the value of NFTs.
Because blockchain architecture is decentralized and immutable, all records since the genesis block can be seen through nodes and blockchain explorers, allowing the verification of authenticity and all the details concerning the NFT.
Same with tokens and coins, NFTs are stored on blockchain wallets, making it difficult to be stolen. To store a collectible, a digital wallet that supports NFT storage on a computer or mobile phone would need to be downloaded. After downloading the wallet, you need to have a seed phrase stored and a password to your wallet needs to be created.
How NFTs work?
Initially, there was nothing known as NFTs even when CryptoPunks and CryptoKitties were introduced. However, as Ethereum introduced the ERC-721 standard to create NFTs and it had gained traction ever since. As NFTs are unique items that are stored on the blockchain, these scarce tokens would provide instrumental ownership. Even more, they can be created and traded through marketplaces.
Are there any use cases concerning NFTs?
The art industry has a huge use case built on NFTs. Whether providing more inclusion towards the industry, an alternative source of revenue for most artists and museums, or helping to store historical pieces digitally on the blockchain. Because of the low costs and high levels of inclusion involved, artists, galleries, and museums were some of the first actors to adopt NFTs.
Collectibles are one of the first use cases that emerged on NFT. However, they became the largest use case where many collections are known to be NFTs. Considering lots of collectibles became prominent in the crypto space, collectibles are instrumental for NFTs.
Because NFTs provide authenticity, uniqueness, and provable ownership, various initiatives are being launched. Especially during Covid, San Marino issued vaccine certificates through VeChain Thor, opening the road for more NFT projects concerning certification. Even more, credentials can be recorded on blockchain whether they come from the web, further proving the authenticity that many sources would be required to do beforehand.
The supply chain is one of the most sensitive use cases concerning NFTs. Because NFTs are unique and time-stamped, every detail about the product can be traced within seconds, and the products can be traced without huge costs.
Gaming became one of the most prominent use cases and as a result, it became integral to an ecosystem. Especially with the rise of GameFi, gaming NFTs became crucial for all blockchain-powered games. Considering NFTs can be used as in-game items and they can be used throughout the games with unique attributes, players enjoy various games. In addition to in-game items, NFTs are used to verify progress in various games.
Metaverse real estate or real-life real estate? We know that metaverse real estate can be traded through various metaverses. What if we said that real-life real estate can be traded and transferred. Well, someone from California used NFT to sell his property and many more followed his footsteps. With tokenized real estate use cases emerging throughout the sphere, NFTs can be used to track the history of any building on the blockchain.
Well, we heard about art and collectibles, does music has a list of its own? Actually, musicians are creating NFT albums, and marketplaces are formed just for music. Initially started with Snoop Dogg, Pitbull, and Eminem, Music NFTs are shaping the recording industry and they became so influential that their effect can’t be ignored by mainstream recording companies.
Because NFTs provide uniqueness, authenticity, and provable ownership, the sensitive nature of intellectual property (IP) rights can be recorded on the blockchain with NFTs. Even though it was not seen widely by the industry, European Union (EU) had launched an initiative to record intellectual property on the blockchain, further protecting the rights and taking precautions against natural disasters and unexpected circumstances.
Since the start of the pandemic, many ticketing firms resorted to online tickets to cut down on costs and to reduce contact. But, they can fall into wrong hands and we still need ID cards to ensure that the owner has the ticket in his/her name. But with the help of NFTs, investments, and partnerships with NFT ticketing firms, we may say goodbye to most of the problems concerning tickets.
What are some of the most prominent NFT standards?
As NFTs being developed on major blockchain networks, there are various NFT standards on various blockchain networks are introduced. While some of the most prominent standards are ERC-721, ERC-1155, TRC-721, BEP-721, and BEP-1155, there are many more standards and documentation aimed at creating NFTs on different blockchain networks.
ERC-721 is a standard created by Ethereum to define NFTs. They define all the rules and standards to create NFTs. While its initial use only covered the Ethereum network, now it’s the most widely used NFT standard as many blockchain networks adopted Ethereum Virtual Machine (EVM) compatibility through blockchain.
ERC-1155 standard is another NFT standard created by Enjin. It’s the multi-token standard on the Ethereum network and it provides greater flexibility throughout the ecosystem. The main difference between ERC-721 is that it’s fungibility-agnostic and gas-efficient.
TRC-721 is a standard for creating NFTs on the Tron network and it’s compatible with the ERC-721 standard on EVM networks.
BEP-721 is an NFT standard on Binance Smart Chain (BSC, BNB Chain). Same with Ethereum, they’re used to represent all the attributes of NFTs and are compatible with EVM.
BEP-1155 is Binance Smart Chain’s multi-token standard. Inspired by Ethereum’s ERC-1155 multi-token standard, it combines the fungibility of fungible tokens and the non-fungibility of NFTs. Same with other EVM networks, BEP-1155 is compatible with EVM.
Which blockchain networks support NFTs?
Most blockchain networks support NFTs with varying NFT standards. While most NFTs are concentrated on the Ethereum network, many other projects are being built on Solana, Polygon, Flow, Binance Smart Chain (BSC or BNB Chain), and Avalanche.
Are there any questions about NFTs? Are there any NFT use case which was not covered there? Share your thoughts and questions in the comments section below.
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