Everything you need to know about non-fungible tokens (NFT)

Everything you need to know about non-fungible tokens (NFT)

  • The market for non-fungible tokens, which mediates ownership of digital works, emerged in 2020 with the sale of Christie’s auction house’s digital art portfolio.
  • Kings of Leon is offering its latest album as an NFT – online. 
  • NBA fans recently made the price of a LeBron James featured video six figures.
  • Sophia, the humanoid robot, will be the first artificially intelligent creature to create and auction NFT-based artwork through the Nifty Gateway platform on March 23rd.
  • Toilet paper manufacturer Charmin has introduced five different versions of its irreplaceable toilet paper, i.e., NFTP. NFTPs include decorated (and plain) toilet rolls and include images of the brand’s bear mascot family. According to the company, all proceeds from the sale of the NFT will go to the non-profit organization Direct Relief, which will provide resources to doctors working in disaster-stricken areas.
  • Ja Rule also entered the NFT business. On the platform – flipkick.io – will sell physical NFT works and hopes to collaborate with celebrities and influencers.
  • Canadian politician Norm Kelly – inspired by Jack Dorsey, Twitter CEO, and Elon Must, TechKing – also wants to sell his tweet as an NFT.
  • The world’s first digital home, the “Mars House,” designed by Krista Kim, sold for 33 ETH ($515,000) is entirely virtual and can never be physically accessed by the owner. The home is considered more of an art piece and making waves as the first NFT house sold.

Behind all this is a new tool that uses cryptocurrency support technology to create unique, irreplaceable tokens – NFTs. Collectors can use tokens attached to these assets to verify their authenticity, from works of art to sporting events.

Here’s what you need to know about this new market.

What is a non-fungible token, and what do they do?

Non-fungible tokens are similar to Bitcoin and other cryptocurrencies, with one key difference: 

While all Bitcoins are interchangeable, they are not. As its name suggests, non-fungible tokens are unique. Tokens act as a virtual document and embody ownership of a digital asset/artwork. They are uploaded to a digital ledger where the essential information about them is stored: the date of creation, when they were sold, for how much, and to whom.

In some embodiments, these information bits are transmitted by a cryptographic hash function, an algorithm that takes this information and converts it into a unique identifier. The slightest change in this information would generate a different ID. This allows prospective buyers not to counterfeit the asset. In other designs, metadata is stored independently of each other.

It’s like a digital passport to an asset or artwork that allows you to prove ownership.

What do you get if you buy a non-fungible token?

Non-fungible tokens allow you to purchase demonstrably original versions from digital art to pop albums.

Unlike other digital assets or games, only one person can own digital artworks and creations supported with NFT tokens.

Individual investors trading in digital online marketplaces such as Nifty Gateway or OpenSea will receive a token to their address – a unique identifier for the cryptocurrency account that allows other people to find the account on the network.

Many marketplaces also provide a digital display of the asset, be it an image file depicting a work of art or a basketball event video. Some artists work with token buyers to display the digital work in the physical world, either through a digital frame or by projecting the work onto a building.

Why do non-fungible tokens get so much attention?

According to research by nonfungible.com and L’Atelier, the first non-fungible tokens appeared in late 2017. The market has swelled in three years and attracted big names like Christie’s and the NBA. The rock band Kings of Leon recently announced that they are releasing an album for a non-fungible token so that someone will own the first release of the digital collection.

The focus on digitally collectible pieces has beaten prices. 

Jack Dorsey, CEO of Twitter Inc., is currently auctioning off his first tweet as a non-fungible token. Bidding through the platform reached $ 2.5 million. And newer creators and their creations appear in the news every day.

What is the Ethereum network?

Many of the NFTs are located on the Ethereum network.

While the Bitcoin blockchain was created to store transaction values ​​and track movement between Bitcoin accounts, the Ethereum network provides a broader range of options. Ethereum acts as a software platform where developers can store computer code for other blockchain projects. This makes it much more flexible, allowing values ​​to be exchanged beyond cryptocurrencies.

What is the size of the NFT market?

nonfungible.com and L’Atelier report that the NFT market picked up in 2020 and rose to a market value of at least $ 338 million from $ 41 million in 2018. The increase in interest has led to the expansion of online marketplaces.

The market is still only a fraction of the Bitcoin market’s size, even though some non-fungible tokens are sold at high prices.

What is the risk of buying a non-fungible token?

Crypto assets have gone through everything over the years, and many have fallen on them a lot.

In 2017 and 2018, many poured money into start-ups using a controversial fundraising method, the ICO. Such delays have always preceded certain trading groups’ success that manipulated cryptocurrencies’ price, causing losses to others. 

The value of digital collectibles depends on the assumption that someone else is willing to pay more for it than you. Analysts say there is definitely a link between their big profits and the recent social media-fueled frenzies. However, it has also led to serious losses when we think of some investors in GameStop and Koss.

What do I get when I buy NFT?

When someone buys an NFT, they acquire the original rights to the digital product, be it music or images. The buyer acquires ownership of the digital asset, which is uploaded to a digital ledger where the time of creating the asset, the date of acquisition or resale, and the ownership itself can be traced or proven.

Much of the value lies in the prestige and the awareness that we have an original work. Status involves owning a thing, for it is quite different from owning the original than a copy.

Are there other versions? What makes the NFT original?

Only the buyer of the NFT has the rights to the original work, although other copies may still float on the Internet for free.

Each blockchain-based token is unique. NFTs have metadata that verify when they were created, who created them, and other information. This information is combined with a cryptographic hash function — a technique that converts data into a series of unique 40-digit letters and numbers — to create a unique identifier. Even if thousands of NFTs are sold with digital images that look the same, the underlying information is all different.

However, it is important to mention that when someone acquires an NDP, they only acquire ownership, but not copyright.

What is the trend?

New projects keep investors in the heat of NFTs, and even solutions that break down digital work.

Pieces like Beeple’s $ 69 million sale – “Everydays – The First 5,000 Days” – aren’t available to everyone. Let’s face it. Few run around with so much money in their pockets.

In any case, owning only a portion of digital art is becoming increasingly attractive to collectors. A concept called Fractional Non-Fungible Tokens (F-NFTs) was initially formulated in 2018 as one way to offer shared ownership.

A new decentralized project called Fractional will allow NFT owners to beat the tokenized partial ownership of their pieces, making it easier to buy and sell a percentage of the total NFT. Besides, fractionation allows the NFT holder to realize some liquidity from his asset without selling the entire piece.

“I think this current version of non-fungible tokens will continue to evolve into bigger and broader use cases. Things like real estate and proof-of-ownership of tangible property; wherever NFTs can help execute legal actions. That is when things will start to get really interesting.”

Kosala Hemachandra

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