Everyone knows that NFTs have recently become a major craze that has also reached the masses. It was sensational to find digital art being sold for millions of dollars even at traditional auction houses like Christie's (e.g. Beeple auction). In the meantime, renowned companies and brands such as Adidas and Prada, Gucci and Dolce & Gabbana have all entered the market. Even McDonald's has made the leap.
But... What exactly is an NFT? What does NFT stand for? We'll explain it to you in this article.
NFT by definition
NFT is short for “Non-Fungible Token”.
Non-fungible simply means that the item (or token) is unique and cannot be replaced by other items. Since the NFT is irreplaceable, it is of unique value.
To illustrate this, let's take a look at which different objects the unique nft can represent, namely digital art, music, in-game items (i.e. skins), or wearables for metaverses. To prove the wide scope of the applicability of NFTs, the co-founder of Twitter sold the first-ever published tweet for just under $3 million. But let’s circle back to relevant use-cases later.
The uniqueness of these NFTs comes from its distinctive ID and metadata located on a blockchain like Ethereum or Solana, which creates a unique wrapper for any type of asset. And what makes NFTs unique? An attempt to present the technical context in a simple way.
As we hinted at earlier, the uniqueness of an NFT stems from their distinctive ID.
Whenever a transaction on a blockchain is completed, the transaction will be identified by a transaction hash; that is, a long string of letters and numbers.
An example of an NFT transaction hash:
This transaction hash proves the uniqueness of this NFT:
Bonus info: The above NFT is actually a custom CryptoPets NFT that was created for us at StableNode (note the “S” on the front of the penguin).
If the owner and holder of this NFT (i.e. the person connected to the transaction hash via their wallet) sells it to another person, a new transaction hash will be added to the blockchain.
In other words, each new transaction will result in a new, unique and irreplaceable ID or transaction hash. That way, the proprietary ownership of the asset will always be traceable back to the newest added transaction hash.
As such, a transaction hash might be seen as a digital receipt distinctive from all other receipts on the planet.
How can we be sure that the transaction hash is indeed unique from all other transaction hashes in the World of web 3?
That is due to the blockchain technology, which in short makes it impossible to replicate already existing transactions.
As an analogy, let’s say the alphabet is a blockchain, where each individual letter represents a transaction hash.
If I purchased an NFT, I would be accredited with the first transaction hash of the blockchain; i.e. “A”.
Once I sell the NFT to you, you will be accredited with the second transaction hash; i.e. “B”.
Consequently, it would be impossible for me to claim ownership of the NFT, as the latest transaction hash on the blockchain is “B”, whose ownership is you - not me.
Examples of fungible and non-fungible tokens
An example of a fungible item is a $10 note. The note can be replaced by 10 x $1 notes for example.
The $10 note can also be replaced by goods with a value of $10.
In other words, most of the items in our modern world are fungible.
However, items of affection (for example a highly treasured heirloom) cannot directly be replaced by other items. If you inherited a watch from your family, you would most likely not want to replace it with the same model of that watch, as even though they might look similar, they are not the same.
Another example of a non-fungible item/token is artwork. The original Mona Lisa holds a lot of value. Simply replicating the painting using modern techniques – in such a way that the replicated painting looks exactly the same as the original artwork – won’t result in the same monetary value as the original one holds.
The original piece of art holds unique value which cannot be replicated.
The Mona Lisa is non-fungible.
3 typical use cases for NFTs
1. Gaming - True ownership of digital assets in gaming
NFTs are a novel way of proving ownership of a specific digital asset. Most often you will see the term NFT being used in relation to digital art (like the NFT image we used as an example earlier).
However, NFTs can be used in various cases.
They are also a nifty way of proving ownership of certain assets in online games; e.g. skins.
This is seen as a revolution in the gaming community, as digital assets in online games traditionally are owned by the game company and not the players themselves.
As a result, the player may spend money on the digital assets, but they will never truly own them. By introducing NFTs to games, true ownership of digital assets such as skins can be given to the persons who actually spent money on them. And there is so much more to learn and discover here.
Read more about NFTs in gaming here.
2. Art - Royalties from selling art will be guaranteed through NFTs
Another great feature of NFTs is the ability to track any transaction after the artwork has been created. This will come in handy when the creator of the artwork later on is able to collect royalties from future transactions (e.g. a small percentage of the total sum is paid to the creator at every transaction).
This will in theory revolutionize the art creation industry, as creators will be guaranteed to be paid for their work. However, this is not a native feature of NFT technology (it’s not directly enforced on the blockchain), but rather a feature that can be implemented and enforced by NFT platforms - eg. Rarible.com.
Consequently, this could also encourage individual consumers to purchase art as they know a portion of their money will go directly to the artist – whereas it traditionally has been a question of art dealers purchasing art who then sell it with a sizable markup.
Resulting in expensive art with no monetary value for the creator to incentivize them to create even more and better art (apart from the initial sale from artist to dealer, of course).
As such, NFTs may be seen as a revolutionary technology paying respect to the individual creator. In that sense, NFTs are completely in line with the overall philosophy of cryptocurrency and decentralized exchanges; to balance out the power scales between ordinary individuals and despotic institutions.
3. Community - Building social communities through NFTs
By owning a certain NFT, you may be eligible to join special events, visit private websites, be first in line to mint a certain NFT, and so on.
In other words, through NFTs creators can encourage social communities, which in turn might increase the value of their work. At the very least they will be able to connect with their actual audiences, learn why they appreciate the art, and use this knowledge to further develop their craft.
Top 5 marketplaces for NFTs
There are many different marketplaces where you can buy and sell NFTs today. We have listed 5 marketplaces that we can recommend to you:
By far the largest marketplace for NFTs. Visit OpenSea here. 2. Axie Marketplace
The Axie Marketplace is directly connected to the NFT-game Axie Infinity. The game includes attaining, trading, and collecting digital pets that can be sold and bought through the Axie Marketplace.
DoinGud is an NFT ecosystem focused on positive social impact. The platform is the front-runner in this area, featuring an integrated donation model where a cut of each NFT sale is automatically donated.
Rarible is one of the biggest marketplaces on Ethereum. Visit Rarible here.
Solanart is a recent NFT marketplace powered by the Solana blockchain that has seen significant growth. Visit Solanart here.