What is an NFT? NFTs (Non-Fungible Tokens) also called Digital Collectibles are a new concept in the sphere of Digital Assets. Many people have become familiar with the concept of Cryptocurrencies by now. If you have been following the Cryptocurrency hype, you are probably familiar with their important role in the Blockchain revolution.
Although there are hundreds of different coins available nowadays, all of them share one characteristic, which is fungibility. If a Digital Asset is fungible, then it’s interchangeable with other identical digital assets. For instance, every BTC is equal to another one in terms of value.
On the other hand, an asset that is non-fungible is unique and different from all other assets. For instance, Guernica (a painting by Pablo Picasso) is different in characteristics and value from all the other artworks in the world.
So, Is Fungibility The Only Difference Between Nfts And Cryptocurrency?
Other than being distinct, NFTs do not have monetary value themselves but point at assets that do have one. Most NFTs cannot be divided, unlike Cryptocurrencies. However, a new practice called Fractional NFT has come into existence, which allows an NFT to split up among many owners, but this technique is still under development.
Cryptocurrency is a virtual currency that could be mined but NFTs could only be traded and minted. NFTs are mostly bought through Cryptocurrency accepted on a specific platform. But exactly how NFTs are created? The code in Smart Contracts is executed to mint NFTs.
The Beginning Of NFTs
The story of NFTs goes back to 2012 when Meni Rosenfeld published a paper (Overview Of Colored Coins) which proposed the concept of Colored Bitcoins that may use the Bitcoin infrastructure and benefit alternative currencies, commodities certificates, smart property, and other financial products such as stocks and bonds.
The idea behind Coloured Bitcoins was to create a Digital currency that could be saved, moved, and even swapped for one another in an atomic transaction without the requirement for a third party. Colored coins were an attempt to support the decentralized trade of items that are not conceivable with traditional methods.
However, it was not until 2014 when Kevin McCoy created the first-ever NFT, Quantum (an octagon that animates with different designs and colors). In November 2021 the art piece was sold at a Sotheby’s auction for a whopping $1.472 million.
In 2014, Counterparty, an open-source program and peer-to-peer network built on the Bitcoin blockchain, was launched which allowed users to create Digital Assets. Counterparty partnered with inventors of Spell Of Genesis(the first mobile game based on Blockchain) in 2015 and that’s how BitCrystals (in-game Cryptocurrency) was created.
Again in 2016, Counterparty partnered with Force Of Will (trading card game) and introduced their cards onto the Counterparty platform. After games, it was time for memes to enter the trend. Rare Pepes(memes about a comic character, Pepe The Frog) became popular on the Counterparty platform.
Meanwhile, people started employing the Ethereum Blockchain specifically for NFTs, the reasons behind this choice were:
- It’s easy to prove ownership history because transaction history and token information are publicly verifiable.
- Curbing the need for platforms that accept huge commissions, NFT trading can be done peer-to-peer.
- It’s nearly impossible to steal ownership of a transaction once it’s been confirmed.
- Because Ethereum is never down, tokens will always be accessible to sell.
- For all Ethereum products, the backend is the same. All Ethereum products can communicate with one another, making NFTs transfer easier across products. Buying an NFT on one product and selling it on another is easy. Listing NFTs on several items at once as a creator is possible, and each product will have the most up-to-date ownership information.
Rare Pepe Wallet, created in 2016 by Joe Looney, provided a platform where artists could finally buy, sell, gift, and destroy Digital Artwork. This was the beginning of Crypto art.
CryptoPunks And CryptoKitties
In early 2017, John Watkinson and Matt Hall developed little pop art portraits using a pixelated character generator. By June, 10,000 characters with interestingly different hairstyles, hats, and characteristics had been produced for the CryptoPunk NFT project, which was hosted on the Ethereum Blockchain.
In the beginning, only a small network of Blockchain enthusiasts started buying these art portraits, each one of which was unique.
Axiom Zen, a Vancouver-based firm, produced CryptoKitties, which soon went viral. CryptoKitties NFTs is a virtual game built on the Ethereum blockchain that allows participants to adopt, breed, and trade virtual cats (uses ERC 721). The game’s popularity clogged the Ethereum network in December 2017, leading it to achieve an all-time high in transaction volume.
Players purchase, breed, and sell virtual cats that have varied visual traits of increasing levels of rarity. To join the game, players must purchase Ether Cryptocurrency, which is used to complete all breeding and trading actions.
What Do NFTs Mean For Artists?
NFTs provide a certification of uniqueness to artworks which means that copies of the art pieces especially Digital Art do not affect the scarcity of the artwork since there is only one established official copy of the piece. Value of an asset increases when it is rarer.
With NFTs, artists do not have to wait for appreciators to raise funds for them but they can sell their artworks at good prices on NFT Marketplaces. If you think that paying $69 million for Beeple’s artwork EVERYDAYS: THE FIRST 5000 DAYS is confusing, then you could try buying the amazing BULLETPROOF artwork only for $168,810!
When NFTs are created, Smart Contracts are executed which apparently contain agreement rules for sale between a buyer and a seller. Implementation of these rules can generate royalties for the artist on the future selling of their works as well.
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Why Buy NFTs Of Something Available On The Internet For Free?
The answer to this question is simple, for Ownership!
Ownership rights to any asset give the power to sell, possess, modify or destroy it. For instance, In the sequel to The Hangover, Stu Price(a dentist played by Ed Helms), wakes up with a tribal tattoo wrapped over his left eye after a night of dissipation in Bangkok.
S. Victor Whitmill (the artist who created the tattoo design) filed a lawsuit against Warner Bros. Entertainment and argued that the usage of his design in the movie and in commercials without his agreement was copyright infringement since he had already secured a copyright for the eight-year-old artwork.
Like many people who argue that collectibles, artworks, tweets, memes, anything that is being converted into an NFT could be simply downloaded or copied from the internet Warner Bros. also used the tattoo design thinking it falls under the “fair use” umbrella.
Warner Bros. decided that they would digitally change and substitute a different tattoo on Ed Helms’s face to avoid a lengthy trial. Later, Warner Bros. and Whitmill reached an undisclosed arrangement, averting the worst-case scenario.
How To Trade NFTs?
To buy NFTs you have to first decide on a marketplace, OpenSea, CryptoPunks, NBA Top Shot, and SuperRare are some popular NFT Marketplaces. After selecting a marketplace, create your account and connect your Cryptocurrency Wallet to it. If you do not have a Crypto Wallet then you can use platforms like Ledger, Trezor, CoolWallet Pro, MetaMask, Coinbase Wallet to create one and buy Cryptocurrency with an Exchange, after that, you can buy and sell NFTs. You can put your NFTs for auction on sites like OpenSea, CryptoPunks, or Axie Marketplace.
It’s important to plan for what happens to your Digital Assets when you’re gone. Having a Digital Will is the best way to ensure your wishes are carried out. Being prepared can also help ease the process of transfer of assets for your family after you’ve passed away.