What Are NFTs?
Although NFTs have been around since 2017, they have gained a lot of traction during this bull market. In turn, more and more blockchains have begun offering their own specialized NFT platforms. However, still not everyone is familiar with the phenomenon.
What is an NFT?
NFT is an acronym that stands for non-fungible token. Since a good or asset is considered fungible when it can be exchanged for something similar in kind (think of exchanging a 1-dollar bill for four quarters), a non-fungible good or asset is one that cannot be interchanged.
This is often the case for assets that are legally bound to a person’s name such as a car or a house. Combining this definition with that of a crypto token, an NFT is a non-interchangeable digital asset that resides on the blockchain.
These assets often take the form of collectible art, digital land, and/or music. Unlike regular cryptocurrency, each NFT token is unique, making it extra rare. In combination with blockchain technology, these digital assets are easily authenticated which makes them impossible to forge and sought after.
Why Should I Buy an NFT if I Can Just Copy The Image?
This question often comes up when people, who are used to downloading free JPEG and PNG files off the internet, come across NFTs for the first time. There are a couple of reasons for this.
For starters, more and more NFT creators are beginning to merge their digital creations with dynamic platforms such as video games. This gives the digital assets a sense of interactivity and tangibility otherwise not found with a simple JPEG.
Owning a piece of digital art is becoming very much the same as owning a physical piece of art in the sense that both are often limited in supply. The more limited the supply, the more profitable this can be for the owner. In other words, the more people invest in these scarce digital collectibles, the less available they become and, therefore, the more expensive.
Even the most conservative NFT market value estimates sit at around 4 billion USD which is still considered by many to be largely underestimated. This is especially the case when we see NFTs such as Crypto Punks being sold for a minimum of 400,000 USD per piece.
How Are The Assets Linked to The Blockchain?
This process is called ‘minting’. It is the act of connecting each individual NFT to said blockchain.
Most blockchains require the use of smart contracts in order to go through this process. Smart contracts can briefly be described as bits of code that enable two parties to self-execute a contract without the need for a centralized entity to approve the transaction.
Each transaction is fully transparent, traceable, and irreversible and takes place on a decentralized blockchain. Hence, minting uses these smart contracts (or other processes like Turing Complete) to pass ownership over said NFT from one party to another. The code allows the information of ownership to be stored and managed on the blockchain.
While the usual blockchain attributes apply, where a new block is created and information is validated and recorded, the unique nature of NFTs requires more specific properties. For instance, each NFT will receive a unique identifier key that is linked to a specific blockchain address.
Unlike regular cryptocurrencies, NFTs do not have a set value. In other words, they are not exchangeable at a static value unless both parties agree on this. Being linked to the blockchain also means that all NFT ownership can be verified.
Are NFTs Going Mainstream?
Although NFTs are still in their infancy, the market seems to adore them. Their potential is currently unmatched with more and more blockchains providing specialized NFT-platforms every month.
While for the mainstream, their existence is unfathomable, for the crypto connaisseur, they are the embodiment of what technology can do when it meets game culture. The future is largely becoming digital; however, humans are yet to accept it.