What are NFTs?

In March 2021, Digital artist Beeple sold his NFTs for over $69 million dollars, making it the most expensive digital art so far. Jack Dorsey, creator of twitter, sold his 1st tweet as NFT for more than $2.8 million. NFTs are everywhere. It is the one of the top buzzwords in 2021 and will be a top buzzword in 2022. We see celebrities, sport stars, influencers launching their NFTs and making big money out of it. But it is still confusing for a common man to understand. This article provides a simplistic version of NFTs.

What are NFTs?

In Economics fungibility means the ability of goods to be used interchangeable with the goods of the same type. An example could be 100 rupees note. This note can be exchanged with another 100 rupees note and the value would remain the same. An example of non-fungible would be the limited-edition card or painting from Picasso. A particular card or painting doesn’t have the same value or characteristics as other card.

NFT stands for Non-Fungible Tokens which means a unique copy which can’t be replicated. This copy can be transferred from one person to another. NFTs are used to represent ownership of digital assets. NFTs allows the owner to convert their digital art, music in a unique copy over the block chain. This helps to maintain the record of ownership and prevent replication. NFTs has the following properties

  • They are unique

  • They are scarce

  • They are not divisible in small units.

  • They guarantee ownership of the asset

  • They are easily transferable

  • They are fraud proof

How NFTs work?

NFTs are created on blockchain platforms which support smart contracts. Ethereum network is the largest network for NFTs. To understand how NFTs works on block chain let us have a look at different protocols in Ethereum to create token. ERC-20 standard is used for creating stable coins on the Ethereum network. But the coins created are fungible in nature. Similar to the dollar coins. It does not matter if you receive the token from your friend or in a transaction. It has the same value. To allow creation on non-fungible token ERC-721 standard is used. ERC-1155 standard allows both creation of fungible and non-fungible tokens. You can convert your art, music, or any digital asset in the NFTs.

NFTs have one owner at a time. When NFTs are minted through smart contracts which manage the ownership and transfer protocols using protocols like ERC-721.

Application of NFTs

  • Gaming

A lot of games allow you to buy in game currency for real world money. This can be used to buy in game items. But after the game is finished it, can’t be traded, or converted into real world money. But by creating these in game items as NFTs this problem can be solved. For example, in the crypto kitties games you can create your kitties which are basically NFTs, and they can be traded.

Even the game developers can earn a royalty every time an in game NFT is traded.

  • Maximizing earning for creators

Content creators have to rely on platforms to get audience. These platforms take a share from the creator’s side, and all earn by showing ads to the followers of the audience. NFTs prevent the ownership taken over by the platforms as well as allow small artists to show case their talent and sell their work without the fear of copy. When the sell their content, they earn royalty.

  • NFT backed Loans

Several NFTs are very high value, and they can used as collaterals to borrow money.

Comparison of How NFTs are different can be seen in the table below

An NFT internet

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.

Content creators can sell their work anywhere and can access a global market.

Creators rely on the infrastructure and distribution of the platforms they use. These are often subject to terms of use and geographical restrictions.

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.







2 views0 comments