Non-Fungible Tokens (NFTs): A Booming Trend From the Blockchain World
24 March, 2021
Blockchain never ceases to bombard us with mind-blowing innovations and hot trends. Right now, it’s non-fungible tokens that have become the real attention-grabbers and game-changers globally, and they’re likely to continue amazing us even further.
On March 11, 2021, artist Mike Winkelmann, better known as Beeple, stunned the whole world: he sold a piece of his artwork for $69.3 million, the third-highest price that has ever been achieved by any living artist. But this, compared to the preceding works, was not an ordinary physical work of art, but a digital collectible, or an NFT — a non-fungible token.
Onwards and upwards. Twitter founder Jack Dorsey is planning to auction off his and actually the world’s first tweet, which was published on March 21, 2006, as an NFT for $2.5 million. The proceeds from the NFT auction will be converted into bitcoin and donated to Give Directly, a nonprofit organization that allows donors to send money directly to people who live in extreme poverty.
Are you at a loss for words? We feel exactly the same. However, we’re also here to ensure that you won’t lose your bearings in the totally new NFT universe, and could even pluck up the courage to launch your own NFT campaign as well.
Read this article to find out more about non-fungible tokens and their exciting use cases, discover how they’re created and how they function, where NFTs can be implemented and what the most expensive NFTs are.
Overview and definition of non-fungible tokens
A non-fungible token, or an NFT for short, is a cryptographic token that represents a unique item, which can be sold and purchased by anyone. NFTs rely heavily on blockchain technology, whose network of computers is able to keep track of transactions and provide buyers with proof of ownership and authenticity. To verify that the NFT is legit, you can take a look at the NFT’s code that has been “signed” by its creator. This digital signature authenticates the token on a server, browser, or platform, thus making it verifiable in a decentralized way.
Currently, the most tradeable digital assets in the market are images, animated GIFs, avatars, memes, various artworks, video games, songs, and the like. Artists, musicians, and influencers as well as sports franchises are eagerly adopting NFTs to monetize digital assets that used to be either inexpensive or completely free. The ingenious concept satisfies the art world’s need for provenance and authentication within a digital community, thus smoothly and reliably linking a digital file to its creator.
Being proprietary and exclusive, non-fungible tokens allow their buyer to be the sole owner of the token. However, given that it slightly contradicts the decentralization idea that stands behind DLTs, new types of NFTs are starting to appear on the market called fractional non-fungible tokens (or F-NFTs), which enable several users to own a fraction of a particular NFT.
A bit of history
The concept of non-fungible tokens has been around since 2012 when the colored coins created on the Bitcoin network were first introduced. However, NFTs managed to gain momentum back in 2017 with the emergence of Ethereum-based CryptoPunks, followed by CryptoKitties — a website that enables cryptocurrency users to buy and “breed” a limited edition of cute digital cats. These were considered the most successful and ground-breaking NFT projects for a long time, but as NFTs are progressing and being embraced by a wider range of illustrators as well as video and graphics artists, it’s pretty clear that we’ve yet to see even more jaw-dropping and extraordinary results.
What are the main features of NFTs?
When getting to grips with non-fungible tokens, it’s important to understand what makes them special and what outstanding features they possess:
NFTs are often so widely sought because of their scarcity. Even though it’s possible for developers to generate whatever the number of assets they like, they’re also capable of limiting the number of nun-fungible tokens so as to create this kind of scarcity.
Given that each and every NFT is unique, they cannot be interchangeable. In addition, when designing a non-fungible token, it’s provided with its own metadata, which is an unalterable record that offers an NFT with its certificate of authenticity.
Thanks to the decentralized and immutable nature of public distributed ledgers where all records of token issuance and other activities can be verified, buyers can be confident about the authenticity of a particular non-fungible token.
All NFTs are located on a DLT within a related account. The creator of a non-fungible token is able to control the private key of the account where the NFT resides and to transfer their token to any other account.
Fungible vs. non-fungible tokens
Some people find it a bit puzzling to understand the difference between fungible and non-fungible tokens.
First, let’s make it clear from the very beginning that fungible tokens are synonymous with “interchangeable”. So, for instance, currencies, stock market shares, bonds, and commodities like gold, silver, and oil are fungible. If one person, say, has an ounce of gold, they will be able to sell it to someone else who will be able to buy it — thus, neither party will lose anything. Fungibility implies the ability to be replaced by something identical. Therefore a fungible token can be divided and exchanged for something else.
As far as cryptocurrency is concerned, this is also a medium of exchange. Though it’s created, distributed, and verified by blockchain, without any middlemen like banks and governments, it’s still fungible — just like a dollar, pound, or euro.
On the other hand, when dealing with non-fungible tokens, you should always remember that they’re unique, which means that they cannot be replaced with something else. A plane ticket, for example, is unique and thus it’s an example of a non-fungible asset, as it designates a specific seat, on a certain plane, at a particular time. Though there are indeed similarities between NFTs and cryptocurrencies regarding their closeness to blockchain technology, which is responsible for their generation and distribution, non-fungible tokens have their own value, which makes them so special and desirable.
The existing non-fungible token standards
To ensure that NFTs operate properly, it’s important to consider different blockchain standards and choose the one that will suit you. The majority of all existing NFTs, though, were created using one of the two Ethereum token standards — ERC-721 and ERC-1155. They’re responsible for ensuring that NFTs can easily be deployed and are compatible with different exchanges and wallet services such as MetaMask and MyEtherWallet. However, some other, non-Ethereum-based, standards are now looming on the horizon, and they seem to be advanced and efficient, too.
Introduced in 2017, ERC-721 is an Ethereum-based token standard that is designed to make writing code less complicated, and more predictable and reusable. ERC-721 is the leading standard used for creating unique NFTs for digital collectibles, as it offers a mapping of special identifiers to addresses, which is capable of validating the owner of those identifiers.
Thanks to ERC-1155, smart contracts are enabled to facilitate both fungible and non-fungible tokens, whereas identifiers can represent several asset classes. ERC-1155 also allows developers to conduct massive transfers of tokens in line with a smart contract, which significantly reduces the impact on the network and paves the way to significantly cut down on transaction fees.
The Ethereum network is viewed as a generally accepted DLT for the creation of non-fungible tokens. Nevertheless, it has some obvious drawbacks, with the most considerable being the network’s rising gas fees. This has forced developers to search for other non-Ethereum public DLTs, which offer more outstanding performance and lower fees. Among such offers, Hedera seems to be one of the most prominent. It empowers developers to create native NFTs with the help of the Hedera Token Service at a discount of about 99%, and even allows for a faster transfer of tokens.
Creating an NFT: how to do it?
You may well have some doubts about whether to give NFTs a try. But what’s worth bearing in mind, especially if you’re a digital artist yourself, is that you’ll have more freedom and autonomy in controlling your NFT, and won’t have to resort to any middlemen for help.
OK, you’ve made a decision to start out with NFTs, but what does the NFT creation process look like and what should you remember?
First, you’ll have to choose the blockchain that you’ll use for issuing your NFTs. For the time being Ethereum and Flow are regarded as the most preferable options, though there’s a wide range of blockchains that are popular too, including Binance Smart Chain, Tron, EOS, Polkadot, Tezos, Cosmos, and WAX. Each of them has its own token standards that comply with wallet services as well as marketplaces.
Afterwards, you should connect your crypto wallet to the NFT marketplace where you wish to trade. As of today, there are numerous Ethereum NFT marketplaces that will help artists convert their files or images into NFTs within a few minutes.
Once you’ve entered your wallet password, it’ll immediately connect your wallet with the marketplace. Then you can proceed to the “Create” section located in the marketplace and upload your artwork. NFTs support a range of files and file formats, like JPG, PNG, GIF, etc. for visual files, MP3 for music files, GLB for 3D files, etc.
Moreover, a lot of marketplaces offer creators the chance to include some special characteristics and attributes in order to boost the scarcity and uniqueness of their NFTs. Owners can also provide unlockable content (discount codes, contact info, etc.) that will be viewed only by the purchaser of an artwork.
When you’ve finished creating your NFT, you should confirm it — the artwork will then appear in your collection and be ready to sell.
How to sell and buy NFTs
When you’re ready to sell your NFTs in a marketplace, you first need to place them in your collection and click on the “Sell” button. You’ll be redirected to a pricing page where you’ll determine the terms and conditions of the sale and state whether you want to hold an auction or sell your NFT at a fixed price.
So far, the most common cryptocurrency you can sell your non-fungible token for is Ether tokens (ETH). However, if you’re using another blockchain platform, you should remember that it may only support native tokens. So, for instance, the Flow blockchain marketplace VIV3 only accepts native FLOW tokens.
As well as the above, some marketplaces provide functionality such as “Edit”, which allows you to program in royalties and choose the ERC-20 token you want to receive for selling your NFT. Thanks to royalties, artists along with other content creators will earn a commission every time the asset is purchased by a new person. This is viewed as a kind of a lifelong passive income stream generated by smart contracts.
There’s also been a lot of hype about art drops — a way of selling rare NFTs to hungry buyers. This normally requires users to sign up and fund their accounts beforehand so as not to miss the opportunity to buy NFTs when they drop. Given that pack and drops can be over in a matter of seconds, you need to have your wits about you 24/7.
Whenever you wish to buy non-fungible tokens, you’re strongly advised to think hard about aspects such as:
- The marketplace where you intend to buy an NFT
- The wallet that will connect with the marketplace platform
- The type of cryptocurrency needed to complete the sale
If you consider these things in advance, you’ll be more likely to carry out your purchase smoothly and stay in an advantageous position.
Overview of the top 5 NFT marketplaces
Given that NFTs have been witnessing a surreal surge in popularity, more and more NFT marketplaces are rising to prominence. They permit the owners and buyers of artwork to buy, sell, and trade non-fungible tokens in a smart way. We suggest considering the five most eye-catching NFT marketplaces and looking into what they offer to digital art enthusiasts.
OpenSea is regarded as the first and largest P2P NFT marketplace for buying, selling, and trading crypto assets. It contains about 4 million items across various categories, including game items, collectibles, and virtual goods, which are secured by blockchain.
SuperRare is a social platform that has sway with artists and collectors as it places a great deal of focus on their needs and requirements. It was jointly founded by Pixura’s CEO and CPO, John Crin and Jonathan Perkins respectively. SuperRare allows artists to submit their work for review and, once approved, proceed to create and trade NFTs.
Some experts say that SuperRare has a lot in common with Rarible, another NFT marketplace. But the former has higher entry barriers compared to the latter.
KnownOrigin is a platform that empowers artists to design, list, and trade their works on a marketplace secured by the Ethereum blockchain. KnownOrigin accepts digital artworks in JPG and GIF formats and holds all files in a decentralized way on the IPFS (InterPlanetary File System).
NBA Top Shot
NBA Top Shot is dedicated to trading digital collectibles of memorable moments (clips) from NBA history, including certain shots and scores. The duration of the clip is about 5 seconds. NBA issues a limited number of editions for every pack and doesn’t produce more once that number is finalized.
Being a non-conventional NFT marketplace, Decentraland is more often referred to as a fully decentralized digital world. Its users are able to buy plots of land — non-fungible unique digital assets — that can then be developed further. Decentraland is made up of smart contracts as well as assets. The marketplace community has the capacity to cast their votes on policy updates, future land auctions, etc. All the governing mechanisms are built and powered by Aragon — a DApp that runs on the Ethereum blockchain.
Who uses NFTs? Examples of the most interesting use cases
Published by L’Atelier BNP Paribas and Nonfungible.com, the NFT Report 2020 states that the NFT market value increased by 299% in 2020. However, the beginning of 2021 has already proved to be very dynamic for the industry and we’re bound to witness even more astonishing sales. For now, we suggest learning more about how and for what purposes famous personalities, companies, and brands worldwide have been using non-fungible tokens and what kinds of benefits they’ve gained.
Professional artists have gained the opportunity to generate considerable profits from their works, with Beeple, auctioned at Christie’s, being one of the most evident and successful examples. After this tremendous and unexpected success, another auction house, Sotheby’s, has also announced that it’s going to join the non-fungible token craze. It’s teamed up with digital artist Pak who has been producing digital artworks for decades already. However, their personality remains anonymous even today.
As well as these, Grimes has also decided to keep up with the NFT rush. She recently sold some of her digital artworks for about $6 million. Jason Momoa has seized the opportunity provided by NFTs too. Being very passionate about the environment, he auctioned his artwork to raise money for eco-conscious charitable causes. Among other celebrities who were unable to resist embracing the NFT trend are Paris Hilton, Ashton Kutcher, Adrien Brody, and many others.
It’s important to note that thanks to NFTs, talented amateur artists who used to simply publish their works on Instagram and Twitter, have also been able to reach the top and start making money from their work. So it’s possible for anyone with some artistic skill to benefit immensely from art NFTs.
Non-fungible tokens have had a tremendous impact on the sports industry. So, NBA Top Shot, a website that allows users to buy video highlights in the form of NFTs, has generated more than $230 million in sales as of February 2021.
Fantasy sports have also taken advantage of NFT token sales. Sorare, a platform for creating and trading football non-fungible tokens, has already made several deals to create digital playing cards for Japan’s J League and Korea’s K League, as well as some top European clubs such as Bayern Munich, Paris Saint-Germain, and Juventus. The number of Sorare cards is limited, and each of them is verified via the Ethereum blockchain. The cards’ prices can be jaw-dropping, with the Cristiano Ronaldo card selling for $102,000. On top of this, it was reported in December 2020 that FC Barcelona defender Gerard Piqué was going to invest $4.3 million in Sorare and join the firm as a strategic adviser.
Axel Infinity is a website that specializes in selling cartoon characters for fighting, just like Pokemon, and is considered one of the most successful and popular crypto-collectible platforms. Among other NFT collectibles that are based on arcade games is Street Fighter, which managed to generate about $1.5 million only weeks after the site was created.
Altitude Games partnered with Decentraland to launch a blockchain racing game called “Battle Racers” on the Arkane Market website, popular among thousands of gamers on the blockchain worldwide. Other popular trading cards and memorabilia sites such as Myth.Market and Treasureland, are also booming.
The sports brand Adidas and supermodel Karlie Kloss are embracing digital fashion NFT. They’ve been working together with The Fabricant, a digital fashion brand, with the purpose of creating a digital version of the Wind.RDY Parka Jacket from the Adidas x Karlie Kloss fashion line. This initiative challenges creators to come up with their own digital interpretations of the actual clothing. The 20 best designs will be selected by professionals in the fashion industry and then auctioned on KnownOrigin — an Ethereum-run digital marketplace.
Virtual real estate
According to Janine Yorio, the head of Republic Real Estate, digital real estate has the potential to become another big area for investment. Nowadays, NFT websites like Ethereum-based Decentraland have started to capitalize on virtual real estate. Its key feature is that it’s created and fully owned by users and allows them to build an entire virtual world as an NFT, which is more sophisticated and cooler than the ones in SimCity and Minecraft.
Some of the most expensive NFTs ever sold
There’s no denying that Beeple is currently on top, and the world is guessing whether any other artwork will be able to break this record. But in fact, there are many other NFTs that have been sold at exorbitant prices, and we’re going to be amazed at them now.
Virtual images of Rick and Morty ($2.3 million)
Justin Roiland, the creator of the well-known animated series “Rick and Morty”, became another artist who engaged in the NFT trend. He managed to sell his collection of 16 works in the form of non-fungible tokens for 1,300 ETH, which at the time of selling was about $2.3 million. Roiland admitted that by doing this he was eager to test the limits of crypto art. Some of the proceeds were donated to help homeless people in Los Angeles.
Land on Axie Infinity ($1.5 million)
Nine plots of virtual land called Lunacia on Axie Infinity, a popular blockchain gaming platform, were sold as a single NFT deal for an eye-popping sum of cryptocurrency — 888.5 ETH, or $1.5 million at the time. The purchaser, a person under the username Flying Falcon, is convinced that they’ve made a good investment and believes that they’ve bought a great location, where they’ll be able to arrange different events on “their land” in the future.
Digital collectible character on CryptoPunks ($762,000)
The CryptoPunks world has been inspired by the crypto art movement and contains around 10,000 unique characters. In January 2021, an NFT of a character on the CryptoPunks game was sold for 605 ETH, or about $762,000. This NFT was captured in 2017 and is thought of as an extremely rare “punk”.
Digital cat on CryptoKitties ($170,000)
Dragon, a CryptoKitty, was purchased for a record 600 ETH (about $170,000) and became the most expensive kitty ever traded in the entire history of the game. The extraordinary thing about virtual cats is that each of them, just like a real cat, has unique DNA and its characteristics, called “cattributes”, that can be passed on to their offspring. Earlier generations of virtual cats are more valuable, which makes Dragon rare and even more precious.
F1 Delta Time car ($110,000)
Back in 2019, when the NFT craze was nascent, a non-fungible token was sold at a record price — and that was a Formula 1 car on the F1 Delta (the 1-1-1 model). An anonymous purchaser bought the virtual racing car for 415.5 ETH. In 2019 that was equal to $110,000, but nowadays it’s worth about $665,000. At that time this purchase was called “the highest NFT transaction of the year” — well, if only they had known then that it would be peanuts by 2021…
With NFTs, the range of possibilities is unlimited and diverse. Apart from game collectibles and works of digital art, non-fungible tokens have a tremendous capacity to represent virtual-world property items and even become game-changers in the sports and fashion industries. Furthermore, considering the growing popularity and adoption of NFTs, it’s evident that in the future other platforms apart from Ethereum will turn their focus towards NFT support.
Of course, NFT is still in its infancy, but its promise is already considerable and it gives creators benefits they have never seen before. That’s why it’s certain that more artists will eagerly enter the NFT sector in the not too distant future.
We at PixelPlex have also been stunned by the staggering potential of the NFT sector. With our extensive expertise and professionalism, we aim to help other innovators get started with NFTs. Our Novel, Fully-fledged and Trustworthy STO solution will enable you to digitize any asset and equip you with the ecosystem and infrastructure needed for successfully managing your campaign.
If you’re just an NFT beginner, though, and are at a loss as to where to start — our knowledgeable top consultants will guide you through the specifics of NFTs and provide an in-depth overview of their benefits and capabilities.
Contact us anytime, and we will be more than happy to help you explore new horizons.
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