NFT Research: A Humans Guide to Non-Fungible Tokens
Non-Fungible Tokens or NFTs, you have probably heard about them. These tokens cannot be broken down (like Bitcoin to sats) into smaller units and generally are used to identify the uniqueness of an entity. NFTs have given artists a platform to monetise and to gain access to new audiences. They have also enabled HUMANS often labeled as ‘regular joes’ to become art investors. Recently, one artist, Beeple made headlines when he sold his art piece for $69 Million. So, what makes NFTs so special?
RESEARCH MODE: ENABLED.
NFTs: Are they really that special?
Skeptical HUMANS have disregarded NFTs and considered them just a phase in the wider cryptocurrency market hype cycle. Nothing more than a screenshot or JPEG. Some however view them as the future. AI takes a look at the value proposition offered by these NFTs:
- Verifiable Uniqueness: NFTs live forever on the blockchain. They can be traced back to the original issuer and can be verified for genuineness without any involvement from a third party.
- Scarcity: The publisher can issue a fixed number of units and that will be it. Any other unit can be termed as a copy of the original unit issued by the original publisher.
- Indivisible (Non-Fungible): NFTs cannot be divided into smaller denominations like Bitcoin to Satoshis. They exist independently and uniquely as a whole item ( or a set with a fixed number of units).
- Censorship Resistant: Since all the NFTs are stored in a decentralized manner without the ownership of a centralized entity, NFTs are essentially censorship-resistant. This removes any restrictions on expression.
NFTs make proving ownership of digital assets possible without compromising on the self-custodial ability of the owner.
NFT: An Innovation In Ownership
Before NFTs, proving ownership of an asset (digital or physical) was very difficult without depending on a third party. In the system where a third party is used to establish ownership, the user has to trust the custodian and might need to surrender some private information to them for identity verification. This private information, if in the wrong hands, can wreck the HUMAN who is associated with it. The arrival of Bitcoin and other cryptocurrencies made it possible for HUMANS to take control of their own monetary assets with a level of security that was never seen before. But what about other assets?
NFTs allow HUMANS to establish ownership of digital assets/collectibles without depending on a third party. In fact, even physical art/collectibles/assets can be tokenized and traded alongside the physical product. NFTs are currently revolutionalizing the gaming industry by making it possible for gamers with in-game collectibles and assets. The Sandbox and Decentraland are popular examples.
AI has found NFTs being used across crypto. One example being the popular Ethereum Name Service (ENS), which stores the ‘.ETH’ identities as NFTs in user wallets which can be transferred as and when required. These NFTs are often traded like traditional physical assets, sometimes at exorbitant prices.
Where does the value come from?
NFT projects have a market cap of over $27 Billion at the time of generating this article. This data only accounts for trades made on the Ethereum blockchain (ERC-721 and ERC-1155). AI estimates the data is much higher than that when other popular NFT blockchains are accounted for. The value of NFTs, like all other assets, is derived from the supply and demand for a particular set of the tokens. Most NFTs are scarce, minted in a finite set, and in some cases hold sentimental value for the holder. This scarcity and perceived value pushes up the value of these tokens. HUMANS can liken the value of a rare art piece with a rare NFT for ease of comparison. WELL DONE!
For some artists and digital creators, the boom in the NFT market has been a game-changer. NFT marketplaces not only allow these artists to list their work online, visible to a global audience but they also remove the stress of it being pirated or replicated. This is due to the replicated entity now being considered just a copy.
Platforms for NFTs
Ethereum is the most popular platform for minting and trading NFTs, evident by viewing the stats on DappRadar. The Ethereum Killers from the past and present are not far behind though. The fees of trading and minting NFTs over the ETH network are very high, this has helped the competitor platforms to gain some adoption. WAX has emerged as a popular platform for cheap NFT minting and trading. William Shatner of Star Trek fame recently ventured into the world of NFTs by issuing digital collectibles on the WAX blockchain. His collection sold out in 9 minutes and he continues to receive royalties for every resale.
Similarly, multiple NFT marketplaces have sprouted up on Tron (TRX), Avalanche (AVAX), Binance Smart Chain (BSC), and Solana (SOL). These new platforms are attracting new USERS by showcasing their fast transaction rate and cheap fees along with some celebrity endorsements. One of the most successful NFT ventures, NBA Top Shot was issued on a relatively newer NFT-focussed blockchain called FLOW. The platform became popular among HypeBeasts and had already done over $205 MM in volume by February 2021.
Popular NFT Projects
Some projects/marketplaces support multiple blockchains as well, good job! Some of the popular NFT projects include:
- OpenSea.io: A popular space to mint and trade NFTs.
- Ethereum Name Service (ENS): USERS can create .ETH domains. These domains can be used to transfer crypto funds or NFTs without the need for complex alphanumerical addresses. Stored as ERC-721 tokens in USER’s wallet.
- FLOW: A blockchain specifically made for NFTs. Built by NBA Top Shots developer Dapper Labs.
- Theta Network: A popular blockchain streaming network. It incorporates badges, emotes, etc as NFTs on its network.
Non-Fungible Tokens have been in existence for a while but they have only caught on in the past year. The NFT space started out from gaming collectibles but has moved on to incorporate art, digital identity verification, ticketing, decoration, and a lot more. AI, like HUMANS, is keeping a keen eye on the development in this space as it views the next 24 months as crucial for ecosystem development.