Non-fungible tokens are digital assets that have a unique digital signature. Although the asset itself can be replicated, the record of its ownership is stored on a public ledger to ensure that the certificate of ownership is public. From music to sports memorabilia, there’s something for everyone. If you are looking to invest in NFTs, this article will lead you step-by-step through the process.
What is Fungible?
Fungibility allows us to interchange a good or asset with other goods or commodities of the same value. Fungibility eases the trade process by allowing goods or assets to be interchanged with other commodities without losing value.
Conceived as two things that are identical in specification, examples of fungible goods are commodities, dollar bills, and common shares. Moreover, cross-listed stocks are still considered fungible as the shares of cross-listed stocks are still held by the same person, regardless of the stock exchange you buy them on.
Money is another example of a fungible asset. For instance, if a person borrows money from another person, it does not matter if the person gets paid with a different bill than the one lent in the first place.
What is Non-Fungible?
Non-fungibility is an example of non-interchangeability. Unlike money, some commodities are non-fungible. For example, if you lend a car to a friend, it would not be acceptable for a friend to return a different vehicle, even if it is the same make and model as the original one.
Cars are not fungible. However, the gasoline that powers them is fungible. Other assets such as land and diamonds are not fungible because their unique qualities add or subtract value. For instance, diamonds have different cuts, colours, and sizes. These unique features make them non-fungible goods.
For instance, real estate can not be fungible. Even if there were multiple identical houses, each house has its unique characteristics, such as the noise level and the traffic conditions that it experiences.
On the other hand, we may no longer consider goods fungible if they get unique identifying markings. For example, by adding unique numbers to certain items, such as bars of gold, they can be more easily distinguished and, therefore, non-fungible.
What are Non-Fungible Tokens (NFTs)?
Non-fungible tokens are cryptographic assets on a blockchain that have unique identification codes. Unlike cryptocurrencies, non-fungible tokens are not identical, and we cannot use them for commercial transactions. However, NFTs have the potential for use in various applications. For instance, we could use them to represent physical assets such as real estate and artwork.
Because of their decentralized nature, NFTs can remove intermediaries. Currently, the market for NFTs focuses on collectable items such as digital artwork and sports cards. One of the most hyped spaces is NBA Top Shot, a place for collecting NFT NBA moments in the form of a digital card.
Jack Dorsey, CEO of Twitter, mentioned creating a tokenized version of the first-ever tweet. The NFT version of the tweet has already reached over $2.9 million.
How NFTs Relate to Cryptocurrencies
Like physical money, cryptocurrencies are fungible. For instance, one Ethereum has the same value as the other Ethereum. This fungibility makes them suitable for use in the digital economy. On the other hand, NFTs make each token unique and irreplaceable. This paradigm shift in crypto makes it impossible for non-fungible tokens to be equal.
NFTs are similar to digital passports as they have a non-transferable identity. They can mutually combine to create a third NFT.
NFTs are decentralized tokens based on the ERC-721 standard. The concept of NFTs evolved from the Ethereum smart contract. The ERC-721 standard defines the minimum interface NFTs need to perform their operations. In addition, the ERC-1155 standard further simplifies the NFTs’ storage and transaction costs.
Perhaps the most famous use case of NFTs is CryptoKitties. Launched in 2017, these digital representations of cats have unique identifications on Ethereum’s blockchain. Each cat is unique and has its valuation and attributes. The cats can also produce new offspring with varying valuations.
Within a few weeks after its launch, CryptoKitties had a following of fans who spent $20 million on their care. Some of them reportedly spent over $100,000 on their care.
Although the use case of CryptoKkitties may seem trivial, succeeding NFTs have had more significant business implications. For example, NFTs have been used in real estate deals and private equity transactions.
What Are the Benefits of NFTs?
Non-fungible tokens are the evolution of the concept of cryptocurrencies. However, unlike crypto, NFTs are a representation of physical commodities. Modern finance systems often rely on complex trading and loan systems to handle various types of assets. NFTs are the latest step in the evolution of this infrastructure.
The concept of digital representations of assets and unique identification is not new. However, their combined use as a force for change makes them powerful tools.
One of the most obvious advantages of NFTs is their ability to streamline processes and remove intermediaries.
Non-fungible tokens are also ideal for identity management. For instance, if you need to produce a physical passport at an entry point. Converting passports into NFTs is beneficial for countries wanting to streamline their processes.
Moreover, real estate is another example of NFTs’ ability to democratize investing. It is easier to divide digital real estate than a physical one. This concept can also be extended to include other assets not tied to real estate.
For example, a painting should not always have a single owner. Instead, its digital equivalent could have multiple owners, each responsible for a fraction of the work.
New markets and forms of investment are the most exciting opportunities for NFTs. Imagine a piece of real estate with multiple divisions and properties with varying characteristics. One division might be near a beach, while another one a residential district. The price difference between these two types of properties could vary.
Is it Safe to Buy Non-Fungible Tokens?
Although it’s safe to buy and own NFTs, there are still risks involved. Since NFTs are secure, they won’t be stolen or changed. However, thorough research before purchasing an NFT could reduce the risk of devaluing. There are many ways to own an NFT. You can buy one from a store, create one yourself, or through an NFT drop.
Aside from the general adoption, NFTs are also popular due to their limited nature. If you understand the principles of supply and demand, then you will be able to appreciate NFTs.
NFTs have gained acceptance in various industries such as fashion, sports, and gaming. For instance, Decentral games have created a virtual world where players can play poker tournaments by selling and buying NFTs.
Due to the increasing popularity of NFTs in these industries, it’s only a matter of time before they expand their reach into other industries.
What Are Examples of Non-Fungible Tokens?
NFTs are primarily popular in virtual goods and gaming industries. They are also available on the market. Here are some of the most popular ones:
Digital Art
This type of NFT is characteristic of using digital technology to create images of recognizable figures, such as the ones from artists like Leonardo da Vinci and Michelangelo.
Some digital artists are even turning to NFTs to make money by selling their art. For instance, CryptoPunks’ four artworks are among the most expensive NFTs. One of them sold in December 2021 for $10 million.
Music
Record labels, music, and audio are among the unique and easy to sell NFTs. With NFTs, music and audio can be stored in the blockchain forever. This technology also allows artists to create their own NFTs and sell music on their platforms.
Game Items
In-game items are also becoming popular NFTs. They allow players to obtain goods and services in a game.
Some examples of in-game items are skins, characters, and sprays. Users can acquire them through in-game shops and loot boxes.
Real-World Items
Uniqueness is one of the main factors that a non-fungible token should have.
We can consider any real-world item an NFT if it meets these criteria. Some examples of real-world objects that are NFTs are documents, property deeds, and celebrity autographs.
How to Invest in NFTs?
Due to the NFT ecosystem’s growing popularity, they are easier to purchase. There are several ways, from dedicated exchanges to dedicated marketplaces.
We will take you through buying an NFT from a marketplace step-by-step
NFTs are created using smart contract technology, and they can be purchased using cryptocurrency. Therefore, to buy NFTs, you should first purchase cryptocurrencies. Almost 90% of NFTs are sold on Ethereum’s platform.
This means that most marketplaces accept ETH as their trading token. However, you can purchase NFTs with some other cryptocurrencies as well.
To get started, you’ll need to set up a wallet. After creating the account, forward the ETH from the exchange to your wallet address. Secondly, look for the NFT marketplace that’s right for you. It’s a good place to shop for digital art, memes, and other NFT categories.
Some NFTs are also listed as an auction, which means that you have to bid on the asset before the closing date, while others you can purchase instantly.
Once the transaction has been completed, your NFT will be in your account. Your purchases will be shown on your profile dashboard, and they can be accessed through a wallet tab labelled “My Collections” or similar.
NFTs and the Metaverse
The idea of a metaverse has gained widespread acceptance in the gaming world, as affordable virtual reality technology and multiplayer online games have become more prevalent. However, the concept of the metaverse in the future is more ambitious.
The metaverse concept was brought to the attention of Facebook CEO Mark Zuckerberg when he announced his plan to transform the social media platform into a massive metaverse.
He even went a step further and named the Facebook parent company ‘Meta’. Zuckerberg and other developers believe that the metaverse is a parallel world where people can work, buy and sell their goods and services.
NFTs may have a potential value in the Web3 Metaverse. However, NFTs still need work despite their promising future, as most NFTs are currently built on Ethereum.
Nevertheless, other competitors like Solana are gaining in popularity. At the same time, Ethereum has plenty of problems that are still expected to be addressed in the next version of the network, which is expected to be called 2.0 in 2022 at the earliest.
Many of the technologies that will become the basis of the metaverse will have to evolve together in stages. Such technologies are NFTs, cryptocurrencies, and the underlying Web3 network.
What Are Holographic NFTs?
During the Covid pandemic, many institutions went digital. As we move beyond the pandemic, it is clear that there are many new media and revenue streams that institutions can explore. In response to the changes brought about by the rise of the digital age, many museum organizations are working to improve access and meet the evolving demands of the public.
Among the new opportunities attracting attention to museums and galleries are Non-Fungible Tokens. Holo-NFTs or holographic NFTs are some of the most exciting opportunities that are attracting attention from cultural institutions.
Aside from serving as representations of objects, Holo-NFTs can also render an immersive 3D rendering using augmented reality.
With the increasing popularity of augmented reality in museums, holographic items could be very valuable to institutions. Not only can AR technology allow viewers to get closer to art without having to go to museums, but it can also allow them to own digital representations of art.
The Morpheus Project
The Morpheus Project is a platform that enables users to experience Holo-NFTs from various art institutions worldwide. The platform was created by Perception Codes, who have already gained recognition for their work in the cultural heritage sector when it comes to desktop AR.
According to Frances Liddell, NFTs could be useful for museums. For instance, objects that are too heavy or fragile to transport as part of a tour could be accessible to viewers as a hologram.
Under certain conditions, a holographic NFT could have wide-reaching applications. A digital representation can also be enriched by new layers of understanding and introduced new treatments to provide a richer and more immersive experience.
In addition, digital platforms such as The Morpheus Project can help preserve the rights of artists and galleries. For example, once a museum acquires a 3D model of a physical object, the museum automatically becomes its legal owner. But, they can still allow limited rights to third parties to use and sell the model in holographic collectable format.
NFTs are commodity items, which means that they could generate revenue. Since ticket sales have been severely affected by the pandemic, many cultural institutions have prioritized fundraising efforts.
Holo-NFTs are an appealing solution for museums as they provide an attractive alternative to traditional fundraising efforts.
What Is a Multiverse NFT?
Currently, NFTs are focused solely on NFT trading. However, to keep up with the continuous growth and relevance of the real world, they need to adopt various cross-chain and cross-functional solutions.
This concept refers to utilizing NFTs in a multi-universe or multiverse. Here, NFTs are set to expand their scope beyond the single NFT marketplace.
Although people use today’s NFT space for buying and trading, it might become obsolete in the future due to the utility demand. Furthermore, people may also want to use NFTs to unlock various features or access content across apps. We call such a cross-usable NFT – a multiverse NFT.
Benefits of a Multiverse NFT
Despite their decentralized nature, multiverse NFTs are more than just collectable tokens. They have a superpower that goes beyond the NFT attributes. A Multiverse NFT is a network that enables creators to connect with utility providers and distribute their content across decentralized applications.
A multiverse NFT can have various types of assets that can be managed and interconnected. The goal of a multiverse NFT is to enable creators to collaborate with other NFT users and resources to improve the overall functionality of their platform.
In return, it ensures that NFTs can be cross-usable. With Multiverse NFT, anyone can create and distribute their apps and games. Users can discover, explore and collaborate.
On a blockchain, NFTs are still independent entities that can manage the metadata of all dApps. This approach helps to create utility benefits for users. One example is NFTs could be used to complete a task in dApp A and unlock another utility in dApp B. For instance, an NFT-based game avatar could level up across multiple games by acquiring various game stats upgrades.
Multiverse NFT is a distributed digital asset network that enables developers, game producers, and utility providers to connect their projects using NFTs.
Most Popular NFTs
Take a look at our list of the most popular NFTs.
CryptoPunks
Larva Labs launched CryptoPunks in June 2017. It is a project developed by Matt Hall and John Watkinson, two Canadian software developers.
The concept of CryptoPunks stems from the London punk scene and the electronic music industry. Daft Punk was the main inspiration. The crypto art blockchain project inspired the creation of the ERC-721 standard for the modern crypto art movement and NFTs, which later became a part of the cryptocurrency ecosystem.
CryptoPunks is often seen as the first project to introduce the NFT craze in 2021. Other early projects associated with the movement include Bored Ape Yacht Club and CryptoKitties.
There are around 10,000 CryptoPunks tokens. Due to their scarcity and exclusivity, CryptoPunks tokens are often used as status symbols in cryptocurrency communities.
They can also be bought at auction houses like Christie’s. Out of the 10,000 CryptoPunks, 6,039 males and 3,849 females were made scarce through Blockchain technology. Each character was algorithmically generated using computer code. No two are exactly alike, and some traits are rare and unique.
Initially, CryptoPunks were released for free, and anyone with an Ethereum wallet could claim them. The only cost to claim was the Ethereum gas fees. Most of the CryptoPunks are humans.
However, there are three special types: Alien, Zombie, and Ape. Aside from physical appearance, there are also many additional attributes to explore.
The sale of one NFT in October 2021 for $532 million led to speculations that it was a money-laundering scheme or a security exploit. The company noted that the NFT’s owner used a flash loan to repurchase the item. The transaction took place on a blockchain platform.
Company website: https://www.larvalabs.com/cryptopunks
Bored Yacht Ape Club
The Bored Ape Yacht Club is a collection of over 10,000 NFTs, each featuring an ape with various traits and visual attributes.
Its celebrity owners include Post Malone, Jimmy Fallon, and Steph Curry. Currently, the entry price is 52 ether, which is $210,000.
The club launched in April 2021, allowing its members to buy and sell NFTs. As a result, digital art pieces became increasingly popular on social media platforms. While other digital art pieces often overshadow NFTs, collections such as the Bored Ape Yacht Club allow owners to display their NFTs in profile pictures on social media.
The Bored Ape Yacht Club became the second-largest NFT collection in the world after CryptoPunks, launched in 2017.
Company website: https://boredapeyachtclub.com/#/
Opensea
OpenSea is the world’s first and largest decentralized marketplace for crypto goods, including collectable items and gaming consoles.
Anyone can buy or sell anything through a smart contract. The OpenSea team has backgrounds from Google, Facebook, and Stanford, and its investors include Coinbase, Founders Fund, YCombinator, and Blockchain Capital.
Alex Atallah and Devin Finzer founded OpenSea in December 2017. Users can generate NFTs for free on the OpenSea platform and list them for sale or auction. NFTs are generated on OpenSea using the Ethereum ERC-721 standard and the Polygon layer-2 algorithm.
In 2019, OpenSea raised over $2.1 million in funding, including new investors Animoca Brands and Y Combinator. In March 2021, OpenSea raised another venture capital round of $23 million, including new investors A16z Crypto and Andreessen Horowitz. Later in July 2021, OpenSea announced another investment round of $100 million.
The company’s February 2021 revenues were equivalent to $95 million. In September 2021, OpenSea launched an app for Android and iOS that allowed users to browse the marketplace without buying or selling NFTs. The company revealed that one of its employees engaged in insider trading during the same month.
In January 2022, OpenSea secured $300 million in funding from Paradigm and Coatue Management, valued at $13.3 billion. Later the same month, the company bought the Dharma Labs – a wallet maker.
Company website: https://opensea.io/
Cryptokitties
CryptoKitties is a blockchain game developed by Dapper Labs, a Canadian studio. It allows players to buy and sell virtual cats.
It’s one of the earliest attempts to implement blockchain technology in recreation and leisure. CryptoKitties peaked in popularity in December 2017, causing Ethereum to crash.
To join the game, players must purchase Ether. They will then spend it on performing various tasks within the game. For instance, players can breed, buy, and sell virtual cats with varying rarity levels.
The virtual cats are breedable and have a unique number and a 256-bit distinct genome. In addition, they can carry various attributes, such as fur colour and body type, to their offspring.
The Characteristics of CryptoKitties
Many of the traits that a cat has can be passed down from parents to their offspring. There are 12 attributes that parents can pass down to a cat. These include its fur shape, eye colour, base colour, accent colour, and mouth shape.
CryptoKitty does not have a permanent gender. This animal’s gender can be changed once a breeding session has been completed.
The game has no goal. The only goal of CryptoKitty is to provide a fun and unique game experience.
The ownership of a CryptoKitty is tracked through a smart contract on the Ethereum Blockchain.
Gen 0 CryptoKitties were sold to players at the rate of one every fifteen minutes for one year. New CryptoKitties are created from the breeding of existing ones. Due to the limited number of cats that can be bred, about 4 billion total cats are a final limit.
Each cat has its unique visual appearance, determined by its immutable genes. These are stored in the smart contract of its creator. Since cats are tokens on a blockchain and can be bought or sold digitally, they have strong ownership guarantees.
CryptoKitty Development
Axiom Zen developed the game CryptoKitty. Initially, they intended to release a new kitty every 15 minutes.
CryptoKitty owners can auction their pets through Ether. They can also breed them with a specific CryptoKitty.
Concerns about the game crowding out other businesses emerged shortly after launching. Over 25% of Ethereum’s network traffic was attributed to CryptoKitty. In response to the game’s increased popularity, miners increased their gas limit. The reason for the increase was to accommodate increased transactions and data consumption.
Due to delays in Ethereum’s network, CryptoKitties decided to switch to the FLOW blockchain.
Company website: https://www.cryptokitties.co/
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This article was last updated on January 27th, 2021.
