Introduction

The acronym "NFT" sounds fanciful and cool, but what does it even mean? You may have even come across it, used it, created it, or have no idea; whichever the case, don't worry, I got you. This article will teach you what an NFT is, how NFTs work, and where you can buy and sell them, including their use cases. Without much ado, let’s get started.

What is an NFT?

NFT stands for "Non-Fungible Tokens." An NFT is a digital or tangible asset that uses blockchain technology to show ownership of a unique item. This ownership is known as “proof of authenticity.”

Cryptocurrencies such as Bitcoin, Ethereum, Cardano, etc., are fungible and can be exchanged on a one-to-one basis. NFTs are different and cannot be exchanged on a like-for-like basis because no two NFTs are ever the same.

Each NFT has unique metadata that makes it distinct from other NFTs; this can be the color or age. The rarity and popularity of an NFT determine its value. Examples of popular NFTs include NBA Top Shot, Beeple's Everyday, and CryptoKitties.

NFTs are used to represent assets such as art, virtual real estate, videos, music, in-game items, etc. NFTs rely on the decentralized nature of blockchain to show a transparent and immutable record of ownership. This makes it easier to verify the ownership and transfer of the NFT since the data is publicly available. Also, NFTs allow creators to monetize their digital products. It provides users with a secure and transparent way to buy, sell, and trade these digital assets. In short, it’s another way to monetize real-world assets.

How NFTs Work

Smart contracts and blockchain technology are empowering NFTs. An understanding of how these things overlap will give you an idea of how NFTs are different from traditional assets.

Blockchain Technology

Blockchain technology provides a secure net for NFTs thanks to its decentralized, incorruptible, and transparent nature. Just like cryptocurrencies, NFT transactions on the blockchain are immutable. They’re recorded as a block in the chain, which creates a transparent and verifiable record of ownership. The process is trustless and permissionless, eliminating the need for intermediaries.

Smart Contracts

Smart contracts are self-executing contracts that have the terms of the operation or agreement written into code. The smart contract can execute the creation and transfer of NFTs without needing a third party.

The rules governing transfer, ownership, and royalties associated with an NFT have been written as a code and are implemented automatically. When someone buys an NFT, the smart contract transfers ownership to them. The transfer becomes immutable. The seller cannot revoke the transfer of ownership after receiving payment.

Token Standards

Unlike fungible tokens that are governed by the principles of ERC-20, NFTs are governed by the ERC-721. Although the ERC-721 is built on the ERC-20, it still operates differently. ERC stands for “Ethereum Request for Comment.”

The ERC-721 standard defines the uniqueness of a digital asset by assigning it unique information that differentiates it from other nonfungible tokens. This is automatically done when minting the NFT. The unique information can include age, color, shape, rarity, title, description, attributes, etc.

The ERC-1155 standard is a recent addition that is more efficient thanks to its ability to reduce gas costs and solve scalability issues. Although there are some shortcomings, that will be for another day.

NFT Marketplace

An NFT marketplace is an online platform where you can buy, sell, and trade NFTs. The NFTs can be GIFs, videos, digital art, collectibles, domain names, virtual real estate, digital sneakers, or other forms of digital items.

The marketplaces provide creators with a primary place where they can showcase their NFTs and buyers can buy them. The mode of operation varies. Some marketplaces even allow buyers to mint their own NFTs.

Some NFT marketplaces allow buyers to place bids, make outright purchases, or engage in auctions. Some marketplaces incorporate a royalty mechanism that allows the creators to get a percentage of the sale whenever their NFT is resold.

Thanks to blockchain technology, it is easy to verify the ownership and authenticity of an NFT. Information such as the ownership history of the NFT is available for public view, and this data is secure and immutable.

NFT marketplaces charge fees to list NFTs on their websites and execute transactions, among other things. When minting an NFT, creators can upload the associated metadata of the NFT to the blockchain. After minting, they can be listed for sale on the marketplace. Buyers can choose from different categories of NFTs.

I have decided to review some popular NFT marketplaces on the Ethereum blockchain.

OpenSea: This is the best of the best. It is one of the largest and most popular NFT marketplaces. You can buy different types of NFTs on this platform, including art, collectibles, virtual real estate, etc.

Creators can even customize their storefronts. Also, buyers can buy their preferred digital assets through auctions or fixed-price sales.

Rarible: This is one of the top-ranking decentralized NFT marketplaces. Creators can mint, buy, and sell NFTs here without the need for an intermediary.

What makes Rarible interesting is that users can seamlessly create and customize their own NFTs. You can purchase and upload different types of digital assets on this platform. Also, users can participate in auctions and set royalties.

SuperRare: This platform is well known for its digital art and collection of high-quality, limited-edition. Artists must be invited and made to go through a vetting process to use this platform.

The marketplace supports auctions, and artists get a percentage of the resale value of their artwork.

Mintable: This marketplace supports both fungible and non-fungible tokens and makes the minting process easy. It allows creators to transform their content into NFTs without having coding skills.

They have a user-friendly interface that makes it easy to mint, buy, and sell NFTs. You can also customize your creation on this platform.

Foundation: Artists will need an invitation to join this marketplace. Their emphasis is on quality, and creators can easily engage with a community of art enthusiasts.

KnownOrigin: This NFT marketplace offers digital art and collectibles. The artworks are verified and mostly limited edition. The platform supports auctions. Creators can set royalties for resold artworks.

The Ethereum blockchain is home to many NFT marketplaces, and it is an ever-growing ecosystem. Some popular marketplaces for NFTs are hosted on other blockchains, such as NBA Top Shot, Magic Eden, JPG Store, and more.

NFT Use Cases

Interestingly, NFTs have unlocked new possibilities that open up some wonderful use cases that are disrupting the traditional models. Here are some of them.

Digital Art and Collectibles: NFTs have changed the world of art by providing a secure and verifiable way of representing ownership of digital art. Artists are now able to tokenize their artwork. Collectors can then trade these unique digital assets.

The most popular example is "Crossroads" by Beeple, which sold for $6.6 million on the Nifty Gateway platform.

Gaming and Virtual Assets: NFTs are used to represent in-game assets, virtual items, and characters. This gives game players the luxury of owning and trading their digital assets across different games or marketplaces. This opens up new revenue streams for both game developers and players through the minting and sale of these rare and valuable digital items.

Some rare Axies in the Axie Infinity game have sold for huge amounts. One out of the nineteen triple mystic Axie sold for over 300 Ethereum shows the value players attribute to these rare and powerful in-game assets.

Virtual Real Estate: Thanks to NFTs, people can now own and trade virtual real estate within decentralized digital worlds. People can purchase, sell, and even develop virtual land; this creates a unique economy within these virtual environments.

The leading projects in this use case are Decentraland and Sandbox. For instance, a company called Republic Realm purchased a virtual land on Decentraland for the price of $900,000 in MANA, while another company called Metaverse Group also purchased a virtual land on Decentraland for the price of 618,000 MANA, which is the native token of Decentraland.

Tokenized Real Estate: By tokenizing real estate as NFTs, people can easily buy, sell, and trade real estate assets, and the transactions can be permissionlessly verified on the blockchain.

For example, RealT is a platform that tokenizes real estate properties, which makes real estate investments accessible to more people.

Music and Intellectual Property: NFTs offer musicians and content creators a means to tokenize their work. This also allows them to include royalties in their creations, which ensures they get compensation from every resale of the NFT. This also allows fans to own some of their favorite songs and albums. For instance, musician 3LAU tokenized his album "Ultraviolet" as NFTs, which allowed fans to get a copy of their own limited digital edition of the music. Some perks, such as concert tickets and exclusive experiences, were also included in the NFT.

Collectibles and Trading Cards: Some companies and sports leagues have released officially licensed digital collectibles to offer supporters a new way to engage with their sports teams. An example is the NBA top shot. One of LeBron James's NFTs, "Cosmic" Dunks, even sold for over $200,000.

Socios.com is another platform where football fans can purchase the fan tokens of their favorite football clubs, such as Arsenal, PSG, Barcelona, Manchester City, etc.

Domain Names: Thanks to NFTs, users are now able to tokenize and trade digital domain names. For example, you can buy blockchain-based domain names as NFTs through Unstoppable Domains and the Ethereum Name Service.

Ticketing and Event Access: NFTs have opened a way of tokenizing event tickets, access to concerts and conferences, and more. For example, when the Kings of Leon band launched their album as an NFT, this came with a "golden ticket" that offered VIP access to concerts and other perks for the NFT holders. Also, Flybondi and TravelX have partnered to provide flight tickets as NFTs to customers.

Content Monetization and Social Tokens: Celebrities, content creators, and social media influencers can issue social tokens as NFTs to monetize their work. These NFTs come with perks that allow the buyers to gain exclusive benefits. Thanks to social tokens such as Rally, Chiliz, and Whale.

Supply Chain and Authentication: VeChain is a blockchain platform that companies use to track and verify the supply chain of their products. By tokenizing these products as NFTs on the VeChain blockchain, some companies like Walmart and BMW can track and ensure the authenticity of their products.

Education and Certifications: Schools can issue certificates as NFTs to reduce the fabrication of fake results. Thanks to blockchain technology, the records will be secured and immutable.

For example, MIT was the first to issue a tamper-proof digital diploma through the blockchain.

Virtual Fashion and Wearables: Some fashion companies, such as Adidas, Gucci, Louis Vuitton, Nike, etc., are already using NFTs to tokenize virtual fashion items and wearables.

Healthcare and Medical Records: Thanks to NFT, patients' health records can be securely stored on the blockchain. A patient can manage who accesses their medical history through tokenized records in the form of NFTs. This makes it impossible to tamper with a patient’s record.

Legal and Identity Documents: Some sensitive and legal documents, such as wills and identity certificates, can be tokenized as NFTs. This will ensure that such documents are secure and tamper-proof.

For instance, LegalBlock is a project that’s looking at how to tokenize legal documents. It plans to improve the security and authenticity of legal documents by storing them as NFTs on the blockchain.

Augmented Reality (AR) Assets: Most items sold in the metaverse are NFTs. These virtual items are used for interaction in the immersive digital space. For instance, users can trade virtual real estate represented as NFTs on Somnium Space, which is a virtual reality platform.

Insurance and Risk Management: NFTs can be tokenized as insurance contracts to securely store ownership details and verify authenticity on the blockchain.

For example, Etherisc is a decentralized insurance platform that uses blockchain and NFTs to manage insurance policies.

As you can see, NFTs seem to be applicable to all or almost all industries. The list is just endless. And as blockchain technology improves, there’s bound to be more revelations.

Conclusion

Congrats friends! You finally made it to the end of the article. You now know what an NFT is, including its use cases and how the blockchain makes ownership secure, tamper-proof, and easily verified.

However, NFTs are not without pitfalls, while they offer easy ownership of items, they're also prone to volatility, lack of regulation, and counterfeiting. But it's an ever-growing industry that will continue to be shaped and reshaped. We can only look forward to a better future 🥰🥰.