Non-fungible tokens (NFTs) have become increasingly prevalent in various industries. According to crypto news media Bankless Times, more than 12,000 NFT sales occur daily, with some selling for millions of dollars.
The NFTs range from art and music to the most unconventional items like tacos. Forbes describes the sale of these digital assets as akin to the hype surrounding 17th-century exotic Dutch tulips.
Experts show divided opinions on the matter. Some view NFTs as a speculative bubble, drawing parallels to past phenomena like the dot-com craze or Beanie Babies. They suggest that digital assets’ value may eventually plummet.
Others, however, say that NFTs are here to stay, asserting that they possess the potential to revolutionize the world of investing.
What exactly are NFTs?
Finder’s NFT Adoption Index shows that 3.3 percent of the U.K. population plans to own an NFT. However, 78.8 percent of individuals admit to being unaware of what an NFT is.
NFTs are assets that have undergone tokenization using blockchain technology. They are bestowed with distinctive identification codes and metadata, setting them apart from other tokens.
Meanwhile, tokens, as explained by the crypto platform Pintu, are digital representations of goods, services or other forms of value.
NFTs can be bought, sold and traded for money, cryptocurrencies or other NFTs, with their value being determined by the market and the owners.
For illustration, an NFT representing a banana image can be created and listed on an exchange. Some individuals may be willing to shell out millions for such an NFT, while others might deem it worthless.
Cryptocurrencies can also function as tokens. However, the tokens from the same blockchain are interchangeable or fungible.
Fungible assets can be exchanged or substituted with other assets of equal value. For example, it’s eligible to trade two $10 paper bills because their value is the same.
On the contrary, even though two NFTs from the same blockchain might appear visually identical, they are not interchangeable. The term “non-fungible” implies uniqueness and the impossibility of replacement with something else.
The process of minting NFTs
The creation of NFTs involves a process known as minting, where the essential information of the NFT is recorded on a blockchain.
In simple terms, this procedure encompasses creating a new block, validating the NFT information by a validator and the subsequent closure of the block. Often, smart contracts are integrated into the minting process to facilitate ownership assignment and regulate the transferability of the NFT.
When tokens are minted, they are granted a distinctive identifier that is directly linked to a specific blockchain address. Every NFT token is associated with a specific owner and the ownership details, such as the address where the token is stored.
Even in cases where thousands of NFTs representing the exact same item are minted, each token carries a unique identifier that can be discerned from the others.
How NFTs empower artists and attract brands
The advent of blockchain technology and NFTs has allowed artists and content creators to monetize their creations.
Traditional reliance on galleries or auction houses for art sales is no longer an issue. Artists can now directly sell their artwork to consumers as NFTs and retain a larger portion of the profits.
Artists can also program royalties into their NFTs, ensuring they receive a percentage of future sales whenever their art changes hands, considering artists typically do not benefit from subsequent resales.
But the applications of NFTs extend beyond the realm of art. Esteemed brands like Charmin and Taco Bell have leveraged NFTs to raise funds for charitable causes.
NFTs have also witnessed staggering sales figures. In February, the iconic 2011-era GIF Nyan Cat, which features a cat with a pop-tart body, sold for nearly $600,000.
Meanwhile, NBA Top Shot, a platform for trading basketball highlights as NFTs, amassed over $500 million in sales by late March. A single NFT featuring a highlight moment of LeBron James commanded a price exceeding $200,000.
Even celebrities have jumped on the NFT bandwagon. Renowned figures like Snoop Dogg and Lindsay Lohan have ventured into the world of NFTs, releasing securitized NFTs that encapsulate unique memories, artwork and moments from their careers.
Why NFTs are popular
In early March 2021, a collection of NFTs by digital artist Beeple was sold for over $69 million, setting the record for the highest-priced digital artwork at the time. The artwork was a collage encapsulating Beeple’s creative journey spanning his first 5,000 work days.
However, NFTs had been in existence long before they gained widespread popularity in mainstream consciousness. The inaugural sale of an NFT is reportedly attributed to “Quantum,” a design tokenized by Kevin McKoy back in 2014 on the Namecoin blockchain.
It wasn’t until 2021, when it was minted and sold on the Ethereum network, that its significance became evident.
The Verge reports that the rise of NFTs can be traced back to 2017 with the introduction of CryptoKitties. This blockchain-based game leveraged the Ethereum network, allowing players to adopt, breed and trade virtual cats.
The game garnered attention and laid the foundation for the popularity of NFTs, but in late January 2021, the market witnessed an explosion.
Cryptoslam’s graph data also illustrates the dramatic surge in NFT trade volume since early 2021. The catalyst behind this surge was the launch of NBA Top Shot by Dapper Labs, the creators of CryptoKitties.
For enthusiasts and users, NFTs represent a new era of digital collecting, eliminating the need for intermediaries when supporting artists, athletes and musicians. Conversely, creators view NFTs as a novel way to share and monetize their work.
Digital product sales have long been plagued by issues such as ease of copying and the risk of unauthorized claims. NFTs provide a solution by allowing digital artists to profit directly, bypassing the involvement of record companies, distributors, publishers and other third parties.
Currently, the popularity of NFTs primarily revolves around the realms of art, hobbies and entertainment industries. However, keen observers of the crypto world foresee tremendous potential for NFT implementation across a wide range of sectors and industries.