NFTs are currently taking the digital art and collectibles world by storm. Digital artists are seeing their lives change thanks to huge sales to a new crypto-audience. And celebrities are joining in as they spot a new opportunity to connect with fans. But digital art is only one way to use NFTs. Really they can be used to represent ownership of any unique asset, like a deed for an item in the digital or physical realm.
If Andy Warhol had been born in the late 90s, he probably would have minted Campbell’s Soup as an NFT. It’s only a matter of time before Kanye puts a run of Yeezys on Ethereum. And one day owning your car might be proved with an NFT.
What’s an NFT?
NFTs are tokens that we can use to represent ownership of unique items. They let us tokenise things like art, collectibles, even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.
NFT stands for non-fungible token. Non-fungible is an economic term that you could use to describe things like your furniture, a song file, or your computer. These things are not interchangeable for other items because they have unique properties.
Fungible items, on the other hand, can be exchanged because their value defines them rather than their unique properties. For example, ETH or dollars are fungible because 1 ETH / $1 USD is exchangeable for another 1 ETH / $1 USD.
|An NFT internet||The internet today|
|NFTs are digitally unique, no two NFTs are the same.||A copy of a file, like an .mp3 or .jpg, is the same as the original.|
|Every NFT must have an owner and this is of public record and easy for anyone to verify.||Ownership records of digital items are stored on servers controlled by institutions – you must take their word for it.|
|NFTs are compatible with anything built using Ethereum. An NFT ticket for an event can be traded on every Ethereum marketplace, for an entirely different NFT. You could trade a piece of art for a ticket!||Companies with digital items must build their own infrastructure. For example an app that issues digital tickets for events would have to build their own ticket exchange.|
|Creators can retain ownership rights over their own work, and claim resale royalties directly.||Platforms, such as music streaming services, retain the majority of profits from sales.|
|Items can be used in surprising ways. For example, you can use digital artwork as collateral in a decentralised loan.|
The NFT world is relatively new. In theory, the scope for NFTs is anything that is unique that needs provable ownership. Here are some examples of NFTs that exist today, to help you get the idea:
- A unique digital artwork
- A unique sneaker in a limited-run fashion line
- An in-game item
- An essay
- A digital collectible
- A domain name
- A ticket that gives you access to an event or a coupon
How does the NFT work?
NFTs differ from other ERC-20 tokens like DAI or LINK, because each token is exclusive and not divisible. NFTs allow you to grant ownership of any specific digital object, that can be traced the Ethereum blockchain, which acts to act as a ledger for public use. An NFT is created by digital objects in order to create a representation of non-digital or digital assets. For instance an NFT could be a representation of:
- Digital Art:
- Real World Items:
- Deeds to a car
- Tickets to a live event
- Tokenized invoices
- Legal documents
- A plethora of options to think about!
A NFT can only be owned by one person at a time. Ownership is controlled through the unique ID and metadata which cannot be duplicated by any other token. NFTs are created by smart contracts that determine ownership to the owner and regulate the transferability of NFT’s. When someone mints or creates an NFT the code is which is stored within smart contracts, that adhere to various standards, like ERC-721. The information is then transferred to the blockchain on which the NFT is handled. The process of minting, at an upper level, follows the following steps it follows:
- The process of creating an entirely new block
- Validating data
- The blockchain records information
The NFT’s have a few unique characteristics:
- Every token issued has a unique identifier which has direct connection to an Ethereum address.
- They aren’t directly exchangeable in a 1:1 manner with different tokens. For instance, 1 ETH is the exact identical to another ETH. However, this is not the case for NFTs.
- Each token is owned by a person and this information can be easily verified.
- They reside on Ethereum and are able to be purchased and traded through any NFT market.
That is If you have the following NFTs:
- You can easily show that you have it.
- Achieving that you have an NFT is like proving that you have the currency ETH in your account.
- Let’s take an example. you buy an NFT then the ownership of your unique certificate is moved to the account via your address on the internet.
- The token confirms that the copy you have from the file you downloaded is genuine.
- Your private key serves as proof of ownership for the key that you received.
- The public key of the creator of the content acts as a proof of authenticity for that specific digital artifact.
- The creator’s public key is in essence a permanent piece of the history of the token. The public key of the creator can prove that the token in your possession was created by a specific person, thus enhancing its value in the market (vs counterfeit).
- Another approach to ways to prove that you are the owner of the NFT is to sign messages to prove that you have the private key to the address.
- Like we said Your private key is proof of ownership for the original. This means that private keys that are associated with this address manage the NFT.
- A signed document can be used to prove that you are the owner of your private keys , without divulging them to anyone else and verifying that you own the NFT in addition!
- It is not possible to manipulate this in any way.
- It is possible to sell it and in certain cases, this can earn the creator royalty for resales.
- You can also hold it for a lifetime, and rest comfortably at ease knowing that your assets are secured by the wallet you have on Ethereum.
If you make one:
- You can easily prove that you’re the author.
- You can determine the quantity.
- You’ll earn royalties every time you sell it.
- It is possible to sell it through any NFT market or through peer-to-peer. It’s not tied to any particular platform, and don’t have anyone else to intermediarize.