NFT – An Overview
From digital art and published columns to sports highlights, viral photos and even memes, NFTs can take the form of virtually any type of online content and these irreplicable tokens have skyrocketed in popularity with the potential to revolutionize many world industries.
NFTs can be used to prove ownership of a specific piece of music, art, merch, or secure access to live shows. They are sort of like a digital certificate of authenticity, or proof of ownership, of digital files, born out of the visual art world, but made their way through other fields of life.
NFTs offer several benefits, the most critical being that they offer the opportunity to create rare or even one-of-a-kind digital assets. As these assets are based on a blockchain, they’re under the scrutiny of a decentralized network and, as such, can’t be destroyed or hacked for any purpose. Unlike physical assets, they won’t deteriorate or get damaged over time.
Each NFT transaction is stored on the blockchain providing a complete and immutable history. When the owner wishes to sell, they can engage in secure trading with a direct counterparty, liquidating the asset into crypto or fiat currency and avoiding the need for brokers and their associated fees.
NFTs can also be used to represent fractional ownership of assets, such as real estate, allowing someone to own a piece of an asset that they couldn’t otherwise afford. Now, many industries are exploring how these benefits can be exploited to create new revenue streams, engage consumers, and solve legacy problems.
Differences Between Fungible, Non – fungible and Semi – Fungible
Fungible tokens (ERC-20) imply that there is an equal value between the assets being considered. The definition of fungible is “mutually interchangeable”. A fungible token can be exchanged with other tokens of the same type. An example of this is if I give you one fungible token and you give me one back, then it makes no difference in terms of value to the two of us.
Non-fungible tokens(ERC-721) are one-of-a-kind and cannot be divided. Each token has a unique value and set of attributes that cannot be exchanged for other NFTs. They are a one-of-a-kind piece of data that is both visible and rare on the blockchain. NFTs may be used to symbolize anything or experience that is one-of-a-kind.
Semi-Fungible Token (ERC 1155) is a protocol created to provide fungibility for NFTs in a single smart-contract deployment. This is a new sort of token that may be anything like a “50 dollar coupon” or something similar to a seat to a concert. Each token in the case of the coupon is fungible until it is redeemed or utilized in-store. When a coupon is redeemed, it loses its value and can no longer be exchanged like regular tokens. The token is fungible until it is redeemed, which is why it is referred to as a semi-fungible token.
- NFT Art Tokenization
By far the most popular form of NFT is digital art. Thousands of digital artworks have been minted and sold as NFTs, with many fetching prices in the millions. The popularity of digital art made into NFTs lies in the promise of authenticity: NFTs allow digital artworks to become truly “original” in the sense that a famous painting such as the Mona Lisa is original. It can be copied and printed, but there is only one original version. This has made digital artworks extremely valuable.;
- NFT Marketplace
We have already mentioned that to buy and sell non-fungible tokens, you need special platforms that support the required token standard and smart contracts. These platforms are called NFT marketplaces. With the growing popularity of using NFT, creating a marketplace is also one of the great options for getting benefits from NFT. Marketplaces are designed to attract creators and buyers, and platforms receive a commission on transactions. Some platforms like OpenSea offer ready-made solutions for developing NFT marketplaces, however, if you want to build a truly functional and custom platform, you need the help of experienced blockchain developers.;
- NFT for Domains
Platforms allow creating .eth domains that can be used for different purposes, including to receive crypto. These domains are immutable and censorship-resistant because they are distributed in the blockchain. They are like .com; .net, but instead you can buy names like “. eth”, “.crypto” with no need of renewing the domain name every year. You buy the name once and you become its owner.;
- NFT Patents and intellectual rights protection
Tokenized certifications come with inherent legal safeguards to preserve the authenticity of documents and add transparency to processes.;
- NFT Collectable
Tokens offer a unique way of purchasing one-of-a-kind digital collectables with absolute certainty over their provenance making it a safe value investment for collectors.;
- NFT Ticketing
NFTs can be used to represent tickets in a sports event or a concert. This ensures that every attendee has original access and any ticket reproduction can be prevented. Furthermore, it can serve as memorabilia and even someday might be worth something.;
- NFT Real-world asset
It’s possible to use NFTs to verify the ownership of real-world assets like houses, land, cars, stock, bonds, etc. NFTs can help prevent occurrences of people reselling items that don’t belong to them and verify when and where an individual’s assets have been manufactured and predict when repairs and replacements are needed.;
- NFT Logistics
The technology helps prove authenticity and ensures all information about supply chain data.; Documentation – NFTs can be used to verify documentation such as diplomas, certifications, driver’s licenses, medical histories, passports, and birth and death certificates.;
- NFT Virtual Worlds
Users can monetize their world (avatars and virtual land), and unleash their creativity in new ways.;
- NFT Search
Think of it as a decentralized non-fungible Google.;
- NFT Sports
In the sports industry, counterfeit tickets and merchandise are a big issue, and blockchain is helping to eliminate that. The immutability of blockchain technology prevents counterfeit tickets and collectables, with tokenized sports game tickets being issued on the blockchain. Sports NFTs are also becoming popular with successful athletes becoming tokenized on the blockchain, the value being determined by their performance. ;
- NFT Music
NFTs for Music allow songs, albums, music videos, live streams, interviews, and merch to be bought and sold as collectable items on the blockchain.
Thanks to smart contract technology, musicians can commit the copyrights of their work to NFTs, so they automatically receive royalties when their music is played. Artists may finally receive their fair share for their work without profits.;
- NFT Games
In an industry with 2.7 billion-plus online players around the globe, the idea of digital collectables is not new. In numerous gaming settings, players are urged to unlock some available special accessories regarding their characters or additional in-game gadgets that can be bought and sold in-game for fiat currencies. This creates powerful economies in the area of online gaming.
NFT Development Process
1. Define your asset
The first thing you have to do is to define your asset. You can make an NFT of a digital painting, a text, a piece of music, a video. Literally, anything that can be reproduced as a multimedia file.
2. Choosing standard
Choosing the NFT standard is crucial as it defines the next steps of developing your NFT.
- ERC-721 – ERC-721 is the most commonly used NFT token standard. Each of these tokens is unique and can also be priced individually.;
- ERC-1155 – ERC-1155 token standard allows users to trade fungible and non-fungible tokens with the same smart contract and address.;
- ERC-998 (draft) – ERC-998 token standard enables digital assets to be composed into complex positions and trade them with singular ownership.;
Luckily most blockchains base their standards on the original Ethereum proposals which are usually first to be specified and battle-tested. Examples:
- TRC-721 – TRC-721 is a token standard that is made of a set of parameters that issues non-fungible tokens on the TRON blockchain.;
3. Picking the right blockchain
When it comes to choosing a blockchain network that must fit your requirements, there are several traits to consider:
- Assurance – Depending on the value of the tokenized asset you may need a higher or lower level of assurance that once a transaction is settled on-chain it cannot be reversed or tampered with. Some blockchains provide better assurance than others through consensus mechanisms and value staked on the network. Naturally, this considerably impacts the cost of the transaction.
- Settlement time – The time needed for a transaction to be finalized and confirmed may play an important role when it is essential for the user experience. A quick settlement could be beneficial, say if you’re developing a blockchain-based game where the dynamics require it. Most blockchains nowadays have to trade some of the assurance levels for higher transaction throughput as a consequence of the classical blockchain trilemma.
- Transactions cost – Whether the user or the solution provider is going to pay for the transaction fees, it is of high importance how much interaction on the blockchain is going to cost. It is of course multiplied by the rate at which transactions will occur for the solution at a plan. Anyhow, the cost is tightly correlated to some of the key traits mentioned above.
- Auditability – Do you need the ledger of all transactions to be fully auditable for the open public or will it be accessible only to parties in a closed distributed ledger? A supply chain solution between partnering manufacturers will probably need to be restricted to those in collaboration, as opposed to open markets where it’s an absolute must to be open and public.
- Privacy – Most blockchains are pseudonymous and while your identity cannot be revealed, actions can be traced and linked with complete certainty. If this is a concern for your users, blockchains with increased privacy are not lacking on the market.
4. Deciding where to store the media
The NFT standard is primarily concerned with ownership and uniqueness while storing the actual media files is up to the developer to decide.
- Hosted – The easiest way is to upload the media files on-premise or in the cloud. Yet, this is the most centralized and unstable solution;
- Distributed – When more resilience is required, peer-to-peer media protocols like IPFS allow distribution of files on a network of nodes that anyone can join;
- On-chain – Media files could even be encoded and stored on the blockchain and ensure optimal durability. Of course, that comes at a great cost for gas fees but in some cases, it makes sense (ex: generative art).
5. Minting strategies
Who is going to be able to issue new NFTs must be coded in the smart contract and largely depends on the problem at hand. The most straightforward way is to set a minter account that is granted rights to create new tokens. As this account becomes a point of failure some recovery strategies could be applied in the contract logic, as well as on the account itself (ex: Multisignature account).
6. Allowing tokens to be burned
The contract developer must decide if NFTs can be burned by their owners. It’s important not to overlook this part as it could lead to unwanted consequences.
7. Paying royalties
EIP-2981 is a standard for specifying royalties that should be paid to the NFT creator or rights holder when it is sold or re-sold. The standard is flexible enough to allow implementing schemes satisfying solutions with varying complexity.
Royalties cannot be enforced on each transfer, similar to the traditional art market, since a transfer can be a gift, donation or wallet reconsolidation and not necessarily a sale. The expectation is that marketplaces will want to support the ecosystem sustainability by paying the fair share to the artists and right holders.
8. Setting up the non-fungible token
Set up a development environment for Ethereum (as it is the most used one) that allows compiling our application on our local machine and testing functionality before deploying to the mainet.
Set up two new folders in the project: one will hold the code for our smart contract, and the other will hold the scripts that deploy and interact with the smart contract code
9. Creating a smart contract
Different smart contract codes are based on different implementations depending on the standard for NFT you choose. The most used implementation is OpenZeppelin for ERC721.
10. Connecting MetaMask to the project
To deploy our application to a network, you’ll need to pay a fee denominated in ETH, known as gas fees. When testing the application, you can use dummy ETH to complete the process. We use MetaMask for this task as a Non-Custodial Wallet.
11. Creating a deployment script
Now that we’ve wrapped up our smart contract code, write the necessary scripts to deploy the smart contract to the Ethereum blockchain. After a few seconds, we’ll see that the smart contract has been successfully deployed you will see the newly created address for the smart contract.
If you check your Ethereum wallet on MetaMask, you’ll notice that the amount of ETH you have has been reduced on account of the gas fees required to process transactions.
Questions & Answers?
What does a non-fungible token mean?
A non-fungible token (NFT) is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable. NFTs can be used to represent items such as photos, videos, audio, and other types of digital files.
Difference between a fungible token and a non-fungible token?
A “fungible” asset refers to something interchangeable with another unit of that same asset. A good example of a fungible asset is the US dollar. If I exchange my $1 bill for your $1 bill, nothing really changes. While they are two different pieces of fancy paper, both bills represent the same exact value. That’s fungibility. Conversely, a “non-fungible” asset refers to something of a distinct value. There are no two exact same things. A good example of a non-fungible asset is the painting of the Mona Lisa.