What makes NFTs go?

“Twitter CEO, Jack Dorsey sold his first tweet for a 2.9 million dollars as NFT”.

Recently, the trending news on digital assets created through Non Fungible Tokens(NFT) have overwhelmed many people around the world, including those who dabbled in blockchain.

Despite the fact that NFTs have been available for a long time, their popularity soared in 2021, largely owing to celebrities like Jack Dorsey and Elon Musk, as well as large organizations like the NBA, who promoted them. While the value of NFTs for gaming (the initial use of NFT) has decreased in 2021, the value of NFTs for the arts and collectibles has increased significantly.

Industry analysts predict that by the end of 2021, the NFT market will have surpassed 1.3 billion USD, as more artists, companies, and symbols enter the field to develop their own unique NFTs.

With a growing number of platforms to select from and multiple types of blockchains competing to develop better NFT services, now is a perfect moment to become engaged in this sector. NFT may be the way of the future for digital payments.

Ordinary individuals may find NFTs confusing and worthless. But, many NFTs are being utilized to make video games and digital collectibles. They have a remarkably high value for their owners owing to their rarity and uniqueness. Things like stickers of your favourite team, players, curious collectibles, paintings, and others, can also be represented by an NFT. In this way, they can be exchanged or sold in markets for this type of transaction. Digital identity is another use to be represented in an NFT.

In this blog, let me attempt to demystify some aspects of the NFT and related technology.

The history of CryptoKitties and Ethereum

One of the first NFT projects (gaming application) to gain significant traction was CryptoKitties, a game built on Ethereum that allows players to collect, breed, and trade virtual cats.

Each CryptoKitty can have a combination of several different properties, such as age, race, or colour. As such, each of them is unique and cannot be interchanged with each other. Also, they are indivisible, which means that there is no way to divide a CryptoKitty token into divisible parts (like the Gwei for Ether).

CryptoKitties gained some notoriety after it congested the Ethereum blockchain due to the high activity it had caused on the network. It is clear that the game made a big impact on the Ethereum network, but other factors also contributed, including the rise of the Initial Coin Offering (ICO) .

CryptoKitties is an interesting early example of a blockchain use case that is not a currency, but something used for recreation and leisure. Collectively, these virtual cats made millions of dollars, and some of the rare units sold for hundreds of thousands of dollars each.

Technology behind NFT

NFT is the abbreviation for Non-Fungible Token created using blockchain technology. The blockchain can be imagined as a continuously expanding list of data records, in which each new data record (block) is linked to the previous block by mathematical-cryptographic functions and this chaining ensures that all previous blocks in the chain are unchangeable. (are tamper-proof). The blockchain is not stored in a data-centre or “in the cloud”, as is the case with traditional data storage, but decentralized storage on distributed computers (nodes). This tamper-proofness as well as due to the decentralized fail-safe storage of information in the blockchain is known to the general public mainly through the cryptocurrency “Bitcoin”, in which payment transactions are stored in the blockchain. Over the time, however, many other blockchains developed such as Solana, Ethereum or entities like Polkadot, which provide interoperability between the blockchains.

A token is the digitized form of an asset and has a certain value or a certain function . At the same time, real assets such as real estate or music rights can also be tokenized by writing the associated rights and obligations on the token. This means that the ownership structure is mapped digitally and can therefore be traded.

A token can be both fungible (exchangeable) and non-fungible (not exchangeable).

Fungible tokens can be divided into sub-units and are exactly the same as each other. For example: bitcoins can be exchanged as desired, as they always have the same value. It’s the same with cash: a ten-rupee note has the same value as another ten-rupee note.

Non-fungible tokens, on the other hand, is a cryptographic token that has the ability to be a unique and unrepeatable token. NFTs are inimitable. One that cannot be divided but can be used to represent objects in the real or digital world along with its own characteristics, as well as the ownership of it, keeping all this within a blockchain representation through a smart contract. These have an individual value. If you swap them for one another, you usually do not get the same value that you pass on. NFTs are a unique digital asset that cannot be exchanged one-for-one for another.

Any asset, including drawings, digital works of art, video clips, and even actual things, may theoretically be digitized and utilized as an NFT. It is critical that the NFTs contain information proving their uniqueness. In this manner, the respective owner may always be identified, and his claim may be asserted.

Of course, the challenge now is how to safeguard a digital asset.

How do NFTs work?

There are several schemes for the creation and issuance of NFTs. The most prominent of these is ERC-721 , a standard for issuing and trading non-fungible assets on the Ethereum blockchain .

A more recent and improved standard is ERC-1155 . This allows a single contract to contain both fungible and non-fungible tokens, opening up a whole range of new possibilities. Standardization in the issuance of NFTs allows a higher degree of interoperability , which ultimately benefits users. Basically, it means that unique assets can be transferred between different applications with relative ease.

If you are thinking of storing of your NFTs, you can do it with Trust Wallet. Trust Wallet is an Ethereum wallet and cryptocurrency wallet to store your favorite BEP2, ERC20 and ERC721, tokens. It should be noted that NFTs cannot be replicated or transferred without the permission of the owner — not even from the issuer of said NFTs.

NFTs can be traded on special purpose marketplaces which connects buyers and sellers. Though the value of each token is unique, NFTs are prone to price changes in response to market demand and supply.

But how can things like that have a value? As with any other valuable object, value is not something inherent to it, but a quality assigned by people. Basically, value is a shared belief. It does not matter if it is fiat money, precious metals, or a vehicle — all of these things have value because people think so. If this is how every valuable item becomes valuable, why would digital collectibles be any different?

How to create an NFT?

Anyone can create an NFT. All that is needed is a digital wallet (such as Trust Wallet), a small purchase of Ether (the currency most commonly used to buy NFT), and a connection to a NFT marketplace where you can upload and convert the content into cryptographic or NFT art.

How to buy NFT?

Technically any digital image can be purchased as NFT. However, there are a few things to keep in mind while purchasing one, especially if you are a beginner. You’ll need to pick which market to buy in, what kind of digital wallet you’ll need to store it in, and what kind of cryptocurrency you’ll need to finish the transaction.

OpenSea, Mintable, Nifty Gateway, and Rarible are some of the most popular NFT marketplaces. There are other specialized marketplaces for more particular sorts of NFTs, such as NBA Top Shot, which auctions basketball highlights, and Valuables, which auctions tweets such as Jack Dorsey’s.

But be careful with the fees. Some markets charge a “gas” fee, which is the energy consumed to complete the transaction on the blockchain. Other fees may include the costs of converting dollars into Ether and closing costs.

How to sell NFT?

NFTs are also sold in the markets and the process may vary from platform to platform. You can put your NFT with details like an asset description and asking price. Most NFTs are sold in Ether (ETH), however they can also be sold with other ERC-20 tokens, such as WAX and FLOW (blockchain wallet)

Pros and Cons of NFTs

NFTs have their pros and cons like any technology:

Pros

• They allow to represent in a unique and unrepeatable way digital and real objects within the blockchain. So, we can use this technology to manage these objects safely at all times. Do you wish to tokenize your house or car using an NFT? You can do it, at this point your imagination is the limit.
• The development possibilities of NFTs are seemingly endless , anything that you can represent digitally can become an NFT. For example: domain names (those used to identify web pages) can be represented as an NFT within a DNS on the blockchain. In fact, this is exactly what happens with the Namecoin project and the Ethereum Name Service .
• The creation of NFT may be applied to any blockchain and done in a highly secure manner. Bitcoin, for example, is capable of representing NFTs despite its restricted programming capability. It reduces the security risks for such assets to a bare minimum.
• The existence of standards simplifies the process of creating, implementing and developing them.
• Possibilities for cross-chain interoperability with projects such as Polkadot or Cosmos .

Cons

• While there are standards for developing NFT, they are neither flawless, nor functionally complete. This is one of the primary reasons why the ERC-721 token of Ethereum (the most used for NFT in Ethereum) seeks to be replaced by the ERC-1155 token, which is considerably more secure and includes additional features.
• NFTs are managed by complex smart contracts, which makes their operations complex and heavy (in terms of information). These two factors add to the value of the commissions that must be paid in order to complete transactions. In summary, running NFT can be costly, especially if the network is overburdened and commissions are high.
• Like DeFi (Decentralized Finance) that refers to a system of applications that aim to recreate traditional financial instruments with cryptocurrency, NFT platforms are more susceptible to hacks, since everything is handled by smart contracts and additional interfaces to control them. This entire layer of programming adds attack vectors that can be exploited by hackers for malicious gain.

Impact on Carbon Footprint by NFTs

It is no longer a secret that the technical processes behind a blockchain consume a massive amount of electricity. Bitcoins mining alone is expected to consume more electricity per year than the whole of the Netherlands. This is owing to the extensive hardware required for the peer-to-peer network. Depending on the type of power generation, this naturally also results in high C02 emissions. NFTs are no different.

Memo Akten, a British artist and technologist, looked into the use of electricity in the production and sale of NFTs. According to his analysis of over 18,000 NFT artworks, the average power consumption was 340 kWh. In developed countries, this equates to about 10 percent of the of the average annual electricity usage per family. Further, NFT generates a CO2 footprint of 211 kg which comparable to a two-hour flight.

Although there are attempts to optimize the Ethereum blockchain, on which most NFTs are built, in terms of energy consumption , so far every transaction has been a major power hog. The question of whether a few brightly colored pixels are worth the effort is therefore fully justified.

Conclusion

At this time, it is apparent at this point that an NFT token or non-fungible tokens are a promising option and technology within the blockchain world. Its application to the world around us is vast, with applications for identity and digital security as well as for our homes and our daily lives. NFT will take over the manufacturing sectors, banks, medical and pharmaceutical industries, even in military security environments, since a NFT token has a variety of applications that can be researched and developed.

In fact, what we are seeing now is just only the tip of the iceberg in terms of the development of these technologies. Therefore, we will almost certainly witness additional advances regarding it in the future years. These advancements will have huge impact with their enormous versatility and possibilities.