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NFTs appeared out of nowhere, and suddenly they had taken the market by storm. NFTs have influenced investors positively and negatively.
So, are you excited to learn about NFTs? If yes, then let us start our journey to know all the necessary details about them.
What do you know about NFTs?
NFT is an acronym for Non-Fungible Token. It is a digital asset existing as a certificate of digital commodity ownership. These digital assets certificates are proof of digital assets, and they are representative of real-world articles such as music albums, arts, videos, audio, and in-game items, in short, any type of digital files that can be sold or purchased. Other than NFTs, no other domains for sale or purchase possibly exist in any form of digital media. If you want to own a music file, image, or video, you go through the copyright and legal patent processes.
NFTs are sold in the digital market, and their price is in millions of dollars. You can also sell NFTs in any cryptocurrency. Purchasing and selling of NFTs are more frequently traded along with cryptocurrency, and then they are generally encoded with similar fundamental software as many cryptos. The NFTs, are generally known as digital representations of properties, and they have been compared to digital passports. Each NFT has its unique identification, which cannot be transferred from one owner to another as this quality distinguishes the token from one another. NFTs are irreplaceable, and each of them is unique, or you can say one of its kind (no two-piece of art are exactly alike), and no one can compare one with another.
Why are NFTs called non-fungible?
The fungibility of an asset or good is the ability to be interchanged for another thing of a similar kind, such as cryptocurrency. In cryptocurrency, one bitcoin will remain one bitcoin, and, similarly, the value of one ethereum is one ethereum. Due to this stability, it is easier to exchange cryptocurrencies, so they are fungible, but some goods and assets like owned cars or property can not be swapped for another car or property. NFTs change the crypto model as they are unique and can not be replaced by another NFT, so the two NFTs are not comparable or changeable. This non-interchangeability is knowns as non-fungibility. NFTs are non-fungible, so they can not be exchanged. They are either purchased or sold, that too with a significant amount in cryptocurrency or money.
NFTs are therefore a digital presentation of assets such as property, compared to digital passports. Each token (NFT) has its special recognition so that it can be distinguished from other tokens.
What Is The History Of NFTs?
The NFTs were introduced in a raw form, not in the redefined shape they present today. Its most primitive form NFTs are Colored Coins, raised in a blog post by Yoni Assia in 2012. These colored coins were a small unit of the world’s leading cryptocurrency, Bitcoin, Satoshi’s smallest unit. Even these most minor units represent an incredible amount of digital assets. However, it is a person’s choice to accept or reject the value in offering the entire system. The rejection would stop offering any value to the colored coin. This asset valuation system is quite fragile.
Formal NFT technology was invented in 2015. The asset valuation system presents the basis of its foundation. The work for NFTs started back in 2014 by three colleagues Robert Dermody, Ecan Wagner, and Adam Krellenstein, who jointly founded Counterparty. It was an open-sourced digital fintech platform built based on the Bitcoin blockchain. The platform ran on a peer-peer basis giving benefits to running and operating the Counterparty platform.
Since 2017, the time of rising Etherum blockchain, NFTs are earning great fame as they involve a great roll of money as high as $174 million. The first NFT market was coincidently invented by Matt Hall and John Watkinson. Both creators started ERC20 and ERC721 hybrid tokens and extended them to produce 10K unique characters and named them Cryptopunks on the Ethereum blockchain similar to NFTs to create digital scarcity under the umbrella of Washington Industry Association Cascadia Blockchain Council and Yellow Umbrella Ventures. These ERC20 and ERC721 introduced the standard protocol of most NFTs today in the crypto world.
Initially, NFTs were presented in a limited number. The scarcity of NFTs is the opposite of most digitally existing assets that are infinite in number. Their supply continues to increase with an increase in digital trading. It was assumed that limiting the supply would cause a surge in demand and bring value to the asset. However, now the condition is entirely different in the online trading market.
How do NFTs work?
As mentioned earlier, most of the NFTs present in today’s market form their base on the Ethereum blockchain network. However, other NFTs are based on other blockchains based, the network on which cryptocurrencies work. The blockchains accept NFTs, which pool supplementary information and allow NFTs to function uniquely.
So precisely, NFTs are personal tokens with additional information. This extra information or content holds value as it performs the most important activity to display the content in the digitally presentable form of arts such as a musical file, videos, pictures, MP3s, GIFs, Images, and any other digital form of art. NFTs can then be sold or purchased like any other material because they have value. Their value rise or decreases as per the supply and demand, or similar to the way of the auction in the physical form of art.
So you remember the artist’s masterpiece, the Mona Lisa painting? The Original artist made it in 1503, and it has been placed in Louvre Museum since 1797. But you have seen it over the internet repeatedly or at shops etc. as well. These copies of Mona Lisa paintings are sold and purchased again and again. Similarly, there are replicated versions or copies of original NFTs that are bought or sold, but their value is obviously less than the original version. Duplicates of NFTs are blockchain artifacts.
Are All NFTs Based On the Ethereum Blockchain?
The ethereum blockchain provides most of the NFTs which are existed in the crypto world to date. The primary use of this system is due to its popularity among online traders and immeasurable networking capabilities. Like the ethereum blockchain, any other blockchain can also provide the basis for NFTs without following the standard token protocol of ERC720. The only requirement to offer NFTs is that the blockchain should offer smart contracts functionality. The investors take an interest in exploring options available on different blockchains like Tron, EOS, and Polkadot. Cardano Kidz is a dedicated NFT platform introduced on a third-generation blockchain known as Cardano.
How NFTs Get A Token Standard Protocol?
ERC721, a token-based on ethereum, holds great value in NFTs digital market. It provides a standard for other digital commodities, including NFTs like Cryptochunks and many others in the market. This token existed on the Ethereum blockchain and was not very appropriate for inventing a specific and unique token protocol for processing NFTs, but still, it is used and transformed as it provides an open-source platform. Many people are informed that ETH, the indigenous token of the ethereum blockchain, provides a flourishing atmosphere to host various other altcoins.
Each altcoin uses a specified Ethereum Request for Comment (ERC) to get its distinct identity. There are different standard protocols developed on different types of tokens. For example, ERC20, although based on the ethereum blockchain, these tokens are different. They provide a standard and protocol for the fungible tokens. It means these token can be exchanged, unlike the NFTs. Using the ERC20 protocol, developers can create any number of tokens within one contract.
ERC721 is a standard interface for NFTs as they are a subset of ethereum tokens. It is a carefully designed take that is easily integrated into the ecosystem infrastructure. It has a user-friendly interface for wallet operators and exchangeability, which adds more value to this token, and all other tokens created on a similar protocol. Its uniform assimilation into the NFT system makes it more liquid, elevates chances of price discovery, and enables anyone around the globe to build their assets using NFTs. ERC721 presents a collection of different rules which is applied to all the NFTs based on the ethereum blockchain so that all the tokens can produce a similar result.
What Are The Characteristics Of The ERC721 NFT Standard Protocol?
Standard protocols are good to gain expected results. The standards of ERC721 outline some common rules to be followed by all tokens on the Etherrum blockchain network as it brings uniformity and expectancy in the result. The protocols help to define the following characteristics:
- How to decide the ownership?
- How to create the tokens?
- How to transfer the tokens?
- How to burn the tokens?
Apparently, these are four general questions that are frequently asked in the NFTs marketplace, but using a protocol to answer them makes our life easier.
Why is NFT Considered An Asset?
NFTs are an asset because they are valuable, and the value of this asset is continuously increasing. This asset is flippable like any other asset that you can buy and sell to earn profit. The NFTs gain their value as a piece of art. Their evaluation is as speculative as purchasing a work of art from an artist, so it is on the buyer how much they are pleased to offer the artist, just like in an auction. The buying and selling of the NFTs can also take place through NFT marketplaces, which are digital art galleries that store NFT art pieces. New NFT art pieces are added to these marketplaces every day. The artwork is considered an asset as NFT is all about acquiring exclusive ownership of the artwork from the artist in exchange for a hefty amount.
What Is Extensibility Of NFTs?
The NFTs are created on a fungible cryptocurrency blockchain on their native platform. These token are taken as a resource manufactured for a large-scale digital good instead of a standalone digital good. NFTs are unique in many regards. One of them is extensibility, for which NFTs are praised in the digital trading market. It means that you can create your non-fungible tokens and sell them for cryptocurrencies or value.
You all know that combining fungible tokens with non-fungible tokens increases the value of non-fungible NFTs (newly formed tokens are non-fungible). The newly formed NFT formed by burning two different tokens is an entirely new component of the token economy.
There are apps called dApp on which different brands build a reward system. You can create fungible and non-fungible tokens by playing games and various other methods. The process is known as crafting. As NFTs came into fashion and people started to craft them, they became part of this larger quest. Using the dApp, you can craft each token into an asset.
How Can You Buy NFTs?
You can buy NFTs from online trading platforms that deal in NFTs. Some of the famous platforms are Raible, OpenSea, and Mintable, which are famous among NFT buyers. You can also purchase NFTs by bidding for items as you bid on eBay or through other internet auction apps/sites that permit you to purchase NFTs against a set fee.
How Can You Sell NFTs?
The easiest way to sell NFTs you own is selling on marketplaces mentioned above. You can also sell them by presenting them for an auction and choosing the best bid. For auction, you need to make registration through an email, and your NFT will be available on the marketplace.
Which NFTs Are Most Expensive In The Marketplace?
- Everydays: the First 5,000 Days – $69 million
It is the most expensive NFT, which was redeemed for $69 million. It was sold by Christie’s auction house. This NFT is a collage of Beeple’s Everyday artwork series, with 5000 art pieces that were created in May 2007.
- Crypto Punk #311 – $7.58 million
It is also an Alien Punk. During its most recent auction on 1 March, CryptoPunk became most worthy of the alien NFTs, and it was auctioned for $7.58 million.
- CryptoPunk #7804 – $7.57 million
It is the third most expensive NFT trending in the marketplace. It is one of the AlienCryptoPunks designed by larva Labs. On eight April, it was auctioned for $ 7.57 million.
What Are Some of The Famous Examples of NFTs?
- Beeple’s “Everydays: The First 5000 Days”
- William Shatner’s personal memorabilia
- Grimes releases WarNymph
- Nyan Cat GIF
- Jack Dorsey’s first-ever tweet
- Sports Collectibles: NBA shots
- CryptoKitties: Probably one of the first popular NFTs created
- Decentraland and Virtual worlds
- Andrés Reisinger’s Virtual Design Objects
- RTFKT’s digital sneakers
- Nike’s NFT sneakers
Are NFTs safe?
Owning, purchasing, and selling NFTs is safe. NFTs are constructed on the technology which is used in constructing cryptocurrency., the blockchain technology. Blockchain is a type of distributed ledger which allows keeping a record of transactions across multiple computers. The information is stored in nodes that build a block which eventually grows into a blockchain. All this information is encrypted, which is transformed into a unique code that is not easily accessible. Security is further enhanced using a cryptographic hash. Each block of blockchain technology is secured using a 64 digit long sequence of numbers and letters. So it is surely not easy to break the technology and steal NFTs.
How to Keep Your NFTs secure?
NFTs are valuable. They are purchased using a lot of money, and they are an asset that keeps on adding more value. Although it is based on safe technology, hackers are really smart. It is good to take the necessary precautions. Here are some tips to ensure that your investment is safe and secure.
- Choose a secure wallet
A digital wallet helps you store your cryptocurrencies and NFTs. It is wise to select your wallet carefully as some wallets are more secure than others. Always store the wallet on your personal device only and keep it locked by a password and two-factor authentication.
- Keep a complex password
Stop using your birthday or your favorite person’s name as a password, as anyone can guess that. Use an eight digital or more lengthy password that has numbers and symbols in it. Try to keep it unique and do not save it anywhere.
- Enable the two-factor authentication
By using two-factor authentication, you need to provide verification before completing any activity. It minimizes the risk of an NFT being stolen or accidentally sending it to someone else.
- Keep your recovery phrase in a secure place
It provides an important safety barrier to your account when you forget your password. Using the recovery phrase, you can reset your password. Most of the time, we forget our mnemonic phrase, so make sure it is in a safe place.
- Back up your wallet regularly
The software behind NFTs and cryptocurrency do not crash, but taking necessary precautions is a better option. Wallet backup also helps you in case if you lose your device or it malfunctions.
- Update your software regularly
Software companies keep on fixing bugs in their software. Some of these updates are also to make this software more secure for the users. So, always update your software regularly.
- Use a secure internet connection
Using public wifi presents a probable risk, and it is easier for an attacker to slip away with your personal information. The first tip is not to use public wifi. In case you need to use public wifi use it with a VPN and make sure your device’s Bluetooth is turned off.