What are NFTs?
Before we discuss the future of NFTs any further, we should first take a closer look at what NFTs are. NFT is an acronym that stands for a non-fungible token. Let’s start with the word fungible, which has a precise definition. It refers to something such as currency or goods that can be exchanged or traded for something else that belongs to the same type and has the same value. In our economy, anything is either fungible or non-fungible. For example, a dollar or a bitcoin is fungible. You trade one dollar for another, and you’ll get the same thing.
On the other hand, something non-fungible is non-replaceable and unique because it’s the only one of its type and can have a significant value because it is scarce. For instance, the Mona Lisa painting is non-fungible as there is only one. Non-fungible things are way more valuable than fungible things. The principle remains the same in the digital world, although technology has undoubtedly shifted how we value certain things.
What is blockchain?
Now that we have the terms fungible and non-fungible out of the way, we should also explain the “T” in NFT, which stands for token. To explain what a token is, we need to understand another term often used with NFT, and that is blockchain.
Our money is increasingly becoming just a number on the screen as we use cash less than we used to. It is the result of a bunch of transactions that banks approve and keep track of. With the rise of the internet, people started to wonder whether there could be a money transfer between two people without the bank in the middle. That is how a very clever concept called the blockchain came to life.
Blockchain records all the transactions in a digital tamper-proof public ledger or database on the internet. Computer network nodes always keep a record of everyone’s transactions. They also verify the legitimacy of those transactions without the need for an intermediary. This means that blockchain is a trustless system that enables peer-to-peer sending and receiving of transactions.
How does blockchain work?
Blockchain plays a crucial role in cryptocurrency systems. A blockchain differs from a typical database in how data is structured. It collects and structures data in groups, known as blocks, as opposed to a database that usually structures data into tables. In a blockchain, when the blocks are filled with information, they are closed and linked to the previously filled block. In such a way, they form a chain of data known as the blockchain. Data are chained together in a blockchain in chronological order.
Blockchain records and distributes different types of digital information. When it comes to Bitcoin and NFT, the blockchain is decentralized, meaning that the transactions are viewable to everyone. Blockchain is the foundation for an immutable transactions ledger, meaning that the data entered cannot be edited, deleted, or destroyed. A majority of NFTs are stored on a blockchain known as Ethereum. The Ethereum power consumption is exploding and shows no signs of slowing down. This has raised concerns about the effects it might have on the environment in the long run.
What is a token?
Tokens or cryptographic tokens represent value units built on top of existing blockchain networks. There are four main types of tokens:
- Payment tokens such as Bitcoin, the first and best-known cryptocurrency, serve as a medium of exchange.
- Utility tokens are not a medium of exchange but give access to a blockchain-based product, service, or special features.
- Security tokens represent a digital form of traditional assets, such as stocks and shares, whose ownership or value has been transferred to a blockchain token.
- Non-fungible tokens are digital certificates of something unique, tied, for example, to music pieces or artwork, that don’t have a standard value but can prove NFT ownership rights and authenticity.
How is an NFT created?
The creation of a non-fungible token, also known as an NFT, is referred to as minting. It involves converting a digital item into a secure and tamper-proof asset on the blockchain, similar to how physical coins are made and added to circulation. Ownership of NFTs is handled through the unique ID and metadata that no other token can replicate. After the minting process, the NFT can be bought, sold, and tracked digitally. Creators can also set up a royalty clause that generates passive income for them from subsequent sales of their digital items.
Selecting a platform is a crucial step in minting NFTs. The appropriate platform should be chosen based on various factors, such as the type of blockchain used, the standards and formats supported, ease of use, and the cost of minting an NFT. Ethereum does not have exclusive control over NFTs, but the majority of NFT platforms use Ethereum as their underlying blockchain. The technology of NFTs is still in its early days and is expected to evolve in the future.
NFTs can be minted from digital objects as a representation of digital or non-digital assets, such as:
- Digital art
- Legal documents
The Future of NFT
Despite reports of a potential market crash of NFT, NFT will not be just a fad after all. Throughout history, we have dismissed many innovations as pure fantasy. Not so long ago, many people thought the internet was unlikely to take off. By the same token, some traditional investors dismissed cryptocurrencies and NFTs altogether. Nevertheless, it is now a booming market likely to become an integral part of the investment world.
NFTs are becoming more useful in creating tradable game assets and establishing ownership and identity. Community, culture, and utility are three pillars of an NFT collection’s value. Thanks to token technology, artists worldwide can sell originals for crazy amounts without using intermediaries, and people can own digital things in a new way.
Many venture capitalists believe that NFT is bound to grow bigger and more important as our lives will likely become more virtual in the coming years. Eventually, many believe we will create a metaverse and turn everything into NFT tokens that can be bought with cryptocurrency. The revolution is already on its way. However, it is yet to be seen how our physical lives and virtual reality will coexist together.
The future of digital arts
Bored Ape Yacht Club, also known as Bored Apes, is an excellent example of activating community by offering premium access to an exclusive online club. Each Ape in this collection represents a unique token holder’s digital avatar and a membership card to the Bored Ape Yacht club with members-only benefits.
Generative Art and Crypto Punks have moved NFTs into a cultural sphere where NFTs have started to influence how we produce and consume art and the future of digital identity. The utility of gaming NFTs will shape the future of gaming and enable NFT owners to go far beyond entertainment and create a unique digital identity for themselves.
Since blockchain is the underlying technology of NFT and it is nearly impossible to change or hack, digital artists are likely to use NFT in the future to demonstrate ownership of various digital assets.
The future of business
Beyond the hype of NFTs as collectibles, scams, and fake NFTs, the core power of NFT lies in its authentication. Authentication is the key to the transfer of ownership and transactions. That is why NFT will change future business. NFT marketplaces have already taken measures to prevent fraudulent behavior. In the future, they will increase consumer and creators’ protection and make transactions smoother, safer, and more transparent as the tech matures.
NFT is a digital certificate of ownership that can prove ownership of anything, from digital content to university degrees. Since NFT certificates are traceable and all transactions are entirely transparent, NFTs have the potential to revolutionize many industries, including real estate. They reduce the cost and time needed for processing land deeds and other documentation to verify the ownership of the real estate asset.
Authenticating anything, from house to rare alcohol bottle ownership, can be costly. It can involve attorneys, notaries, and other intermediaries and can last for years. NFT offers new ownership opportunities and can facilitate transactions that are impossible in traditional systems.
The future of gaming
NFTs have opened up a new world where gamers can own, trade, and sell digital objects. Gamers already spend money on digital weapons, game keys, and rare skins that modify the visuals. NFT has the potential to flip the old “pay-to-play” model to “play-to-earn,” where players can earn a significant amount of money through playing their favorite games and interacting with the broader game ecosystem.
Certain games already offer their players rewards, such as NFTs, that can be used or sold. Blankos is an example of a game where players can collect, customize and sell NFTs. Developers and major brands design characters and objects whose NFTs can then be purchased. Some games enable their players to build in-game assets that will enhance the gaming experience and then sell them to other players on in-game marketplaces. Depending on the utility, aesthetics, and rarity of these in-game assets within the game, you can sell NFTs for whopping amounts of money.
NFT is changing our perception of games, as games are no longer just a leisure activity but a viable job for millions of people, especially in developing countries. Even if a player decides to quit a game, they still have immutable ownership of the in-game assets and can sell them via a secure marketplace. That way, players can recuperate at least some monetary investment they put into the game or even make a profit if they sell particularly rare or aesthetically pleasing in-game assets.
Everything about NFTs still feels hype, novel, and exciting. It also pushes our minds to think differently about verifying and validating things. NFT has the potential to authenticate and verify transactions between people and make them much smoother, which could change our world. While some time will pass before we get our heads around NFT and what it means, we will eventually adapt. The blockchain technology that allowed it all to happen will probably stick around and open the world to new limitless possibilities.