NFT: What’s this new token everyone talks about?

Robin Sundstrom - 25 June 2021 - APP Blog BNB BTC

NFT: What's this new token everyone talks about?

An “NFT”, all the vogue now with artists raising hundreds of thousands of pounds through them. Companies have started utilising the technology for everything from identification through to ticket management and souvenirs. 

Built on blockchain technology there are dozens of options if you want to get involved. For example, where to buy them, how to store them, and even what to do with them once purchased.

But, what exactly are they?

 

What is an NFT?

The concept of NFT’s has actually been around a long time. But with blockchain technology growing in popularity, we have found a way to effectively digitise them.

 

Fungible vs non-fungible

In essence, an NFT, or non-fungible token, is a unique digital item. This means that it’s not interchangeable with one of the same type. 

As a comparison, money is normally a fungible item, it is interchangeable. If you lend someone £100 in 5 x £20 notes, you don’t expect the same exact banknotes back.

If you lend a friend your coat, however, you expect them to give you the same coat back. Not someone else’s they’d picked up after they had been somewhere. That’s a non-fungible item.

 

The technology behind the NFT

Blockchain technology lets you create a string of unique code which links to an item that might be digital or might be physical. You can then freely trade that code as proof of ownership. Just like with cryptocurrency, you own that code and you have full control over it. You are also free to send it to anyone who has a compatible wallet. 

The challenge with NFT’s comes to the fact that the item the code refers to. For example, digital artwork, is not unique. Anyone can view it, save and use it still, but only the person with the NFT can prove they own it. 

NFT’s have been around for several years with the earliest examples appearing on the Bitcoin blockchain. They came to prominence with the development of the Ethereum global computing platform. This platform also standardised the various types of tokens possible, including NFT’s with models that are widely used across multiple blockchains. 

 

Cryptokitties put the NFT on the map

One project in particular, Cryptokitties, helped bring about the rise of NFT’s into popularity. 

Cryptokitties is based around fantasy cats with a series of attributes. Cats can then be “bred” together to create new kitties, while also changing some attributes of the ones used. These surged in popularity and gained considerable mainstream press soon after launch. The result was a large number of NFT projects following them.

NFT’s are currently used for everything from digital collectables to collectable card games. Games with complex mechanics akin to Magic The Gathering. Many of them perform multiple functions with their value being at least in part due to the function on-chain or as part of a service. 

 

Artists creating their own NFT’s

One of the most popular approaches at the minute is for artists to create their own NFT’s. They do this on chains such as Wax, which are designed for non-technical users. Artists can upload their artwork, be it static images, videos or music, then create a series of NFT’s connected to it. They can then sell the NFT’s and also make a percentage of any future sales. 

All this happens automatically once they are launched, potentially creating an ongoing revenue stream for artists. All this, without complex legal documents and 3rd parties controlling the flow of money. 

As such the marketplace is competitive with hundreds of artists looking to find a source of revenue from their art. But, as cryptocurrency prices increase, we are seeing an increasing number of NFT investors. Investors who have gained looking to purchase NFT’s and build collections.

 

The NFT market has a lot of potential

As an example of the potential of this market, the artist Beeple sold an NFT through Christie’s Auction House for $69 million. A few months before, he had only sold art for a few hundred pounds.

Even though sales at that level are rare, many artists are raising thousands of pounds for sales that otherwise they wouldn’t have.  Most of that money is paid in cryptocurrency as well. So as prices continue to rise their value will continue to increase. 

The potential of NFT’s is not just as art, however. Any time you need to issue a unique item, NFT’s could be a solution. It could be that a ticket to a concert or even to show proof of ownership of a real-world item.

At the minute they are a niche item used largely by the crypto community and artists. As the technology progresses though, you should expect to see them as background technology we use daily. This might happen without most of us ever realising it. 

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