It is interesting to talk about non-fungible tokensOr NFTs, because they are a perfect example of how blockchain technology affects people’s lives beyond financial markets. As we have seen in hundreds of headlines in the past few months, they have attracted the attention of the world because they are a new way of interacting with culture, music, sports, and the media.
This article will clarify what NFTs are, how they work, how the NFT boom started, and why blockchain technology enables NFTs to create a new economy.
Why are you so excited about NFT?
NFT is such an exciting and interesting topic because almost everyone likes music, art, games and the Internet. The feeds of every social media platform are full of people who have no interest in crypto assets or decentralized finance, who are eager to talk about irreplaceable tokens. In the first half of 2021, we saw many celebrities and memes supporting NFT.
Jack Dorsey, CEO of Twitter Sell his first tweet as an NFT In March last year, it exceeded a staggering amount of US$2.9 million.Edward Snowden’s NFT, a portrait of Snowden himself, is Sell Approximately USD 5.4 million, or 2,224 Ethereum (Ethereum).
The NFT of the Zoë Roth meme, because of the 2005 (and later) meme, when the house was on fire in the background, she looked at the camera and smiled maliciously, so she was called the “disaster girl”. Sell As an NFT of 180 ETH, it is equivalent to nearly $500,000.
In addition, companies from traditional markets have decided to surf the NFT wave.For example, in Brazil, the first set in Havaianas’ NFT is auction Closed last month.
Since December 2020, NFT transaction volume has increased by more than 25 times because NFT has entered people’s daily lives and lives. It can be one of your favorite songs, a cartoon of your favorite superhero, or an in-game tool that your child wishes to acquire.In the figure below, we can clearly see the growth of NFT transaction volume in the last six months and the business volume since the end of the third quarter Before the recent popularity.
What is NFT? How do they work?
We can conceptualize NFT as a piece of software code to verify the properties of irreplaceable digital assets, or the digital representation of physical irreplaceable assets in digital media.For those prefer A more technical view:
“NFT is a smart contract model that provides a standardized way to verify who owns the NFT, and a standardized way to’move’ irreplaceable digital assets.”
In this case, any irreplaceable asset may become the object of NFT, whether it is a domain name, event tickets, digital coins in games, or even identifiers in social networks such as Twitter or Facebook. All these irreplaceable digital assets may be NFTs.
NFT has a data structure (token) that links metadata files that may be fixed in images or files. The token is carried and modified to meet the requirements of blockchain networks, such as Ethereum, Kusama and Flow. The art file is uploaded to the blockchain network, which creates a metadata file in the data structure of the token.
As a content creator, for example Digital Artist Beeple or King Leon, You upload your art files to a platform that obtains the metadata of your files and passes them to the entire back-end process of the product, also known as your NFT.
Then, your NFT will get a cryptographic hash (a key)-a tamper-proof register with the date and time stamp carried on the blockchain network. Keeping track of valuable data and checking that it has not been modified later is essential for any artist.
Loading your artwork on the chain allows you to better understand when the metadata of the art file is tokenized. Since the data of the artwork is uploaded, no one can retrieve or delete it. If your NFT is registered on the blockchain, the possibility of your artwork disappearing is almost non-existent.
How does blockchain technology amplify the possibility of NFT?
Until 2008, the traditional NFT had no unified representation in the digital world. As a result, they are not standardized, the NFT market is closed, and it is limited to platforms that issue and create deterministic NFTs.
The first NFT in the blockchain started Colorful coins on the Bitcoin blockchainAlthough it was originally intended to enable Bitcoin (Bitcoin) For transactions, their scripting language stores a small amount of metadata on the blockchain, which can be used to represent asset management instructions.
On the other hand, the first NFT experiment based on the Ethereum blockchain is the CryptoPunks built by Larva Labs, which consists of 10,000 collectible “unique” punks. The fact that punks “live” on the Ethereum network allows them to interoperate with digital markets and wallets.
NFT became the mainstream of the Ethereum blockchain through CryptoKitties in 2017, allowing users Create digital cats and copy them There are different bloodlines. This is a pioneering project to create a complex incentive system, confirming that NFT can be used as a promotional tool. This has led to people’s interest in auction contracts, which have recently become one of the main mechanisms for pricing and purchasing NFTs.
The exciting part of applying blockchain technology to NFTs is that it greatly magnifies their advantages and possibilities. It proposes the standardization of digital, non-fungible asset representation through the ERC-721 standard. Similar to the ERC-115 and ERC-998 standards, ERC-721 is a smart contract model on the Ethereum blockchain, which brings a standardized way to verify who owns the NFT, and a “mobile” irreplaceable The standardized way of digital assets.
It is worth mentioning that although Ethereum is where most of the actions currently take place, several NFT models have also emerged on other blockchains. For example, dGoods, created by Mythical Games, focuses on using the EOS blockchain to implement cross-chain standards. In addition, TRON’s first NFT standard, TRC-721, was officially announced in late December 2020.The introduction of the standard is expected to help China-centric blockchains use various applications based on distributed ledger technology and keep up with Ethereum Grow NFT department.
Since then, an NFT registered on the blockchain has truly become a “unique” asset that cannot be forged, tampered with or deceived.
What are the main benefits that blockchain brings to NFT?
As mentioned above, the first benefit of NFT supported by blockchain technology is standardization. In addition to standardizing the main attributes of NFTs (such as property, transmission, and access control), blockchain technology also allows NFTs to be combined with other functions, such as specifications on how to obtain NFTs. Other benefits include interoperability, marketability, liquidity, immutability, proven scarcity, and programmability. We will explain them one by one.
NFT mode enables Interoperability Feasible so that NFT can move between multiple ecosystems more easily. In a new project, non-fungible tokens may be immediately visualized among dozens of different wallet providers, can be negotiated in multiple markets, and can be obtained in multiple virtual worlds. This interoperability is possible because the open model allowed by blockchain technology provides a clear, consistent, and reliable application programming interface, and has the authorization to read and record data.
Interoperability in turn is magnified Marketability NFT is realized by realizing free trade in the open market. Blockchain-based NFT allows users to transfer their irreplaceable assets outside of their original environment. They also have the advantage of complex negotiation resources, such as auctions and bids, and the ability to trade in any currency, from cryptocurrencies such as Bitcoin and Ethereum to stablecoins and specific digital currencies for specific applications.
The instant marketization of blockchain-based NFTs has brought greater fluidity To a market that can provide services to a wider variety of public, so that non-homogeneous assets can be significantly exposed to a wider group of buyers.
The fifth and sixth advantages of using blockchain technology in NFT are Immutability with Proven scarcityThis is because smart contracts allow developers to set strict limits on the supply of NFTs and impose long-term attributes that cannot be modified after the token is issued. Therefore, it can be guaranteed that the specific attributes of NFTs will not change over time because they are incorporated into the blockchain. This is especially interesting for the physical art market that relies on the proven scarcity of original works.
An interesting trajectory has emerged in this new blockchain-based NFT world because of recent trends and new markets, such as programmable art-which allows collectors to intervene in the original design of artworks.
In the art market represented by NFT, immutability and scarcity are essential. In the digital art market, Programmability It may be something to consider. We can find examples of programmability on Async Art, a platform for negotiating and creating NFTs so that owners can change their images at any time. Another example of a programmable function is the ability of a song to change its composition. This means that every time you listen to music, the music may sound different. These two examples can be achieved by dividing a segment into separate layers called stems. Each stem has several variants for the new owner to choose from. In this way, a single track of Async Music can contain many unique sound combinations.
Many people do not yet understand the dimensions of NFT prosperity and how blockchain can completely change the way we consume art. Maybe this topic deserves more in-depth discussion.
However, a loophole of NFT is the programmability of smart contracts on the blockchain. Whenever their work is negotiated, it always guarantees rewards for content creators.
Suppose a certain content (music, art, domain name, photos of Bailey’s goal, etc.) has been traded hundreds of times. In this case, the content creator will receive a commission.
This may completely change the dynamics of copyright and intellectual property rights, because if “income distribution” is incorporated into NTF’s smart contract code, content creators will no longer need to worry about the legal property of their artworks.
In fact, the irreplaceable token and blockchain technology market still needs to embark on a long journey to solve the scalability, marketing infrastructure and applicable jurisdiction of NFTs with decentralized storage. Nevertheless, we will not ignore the possibility of codifying the rights of certain digital assets into NFT transactions. This allows the emergence of new businesses and new markets to be managed not only by institutions or traditional trust verifiers, but also by those who create content that is appreciated in social and production centers.
The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Tatiana Revoredo placeholder image He is a founding member of the Oxford Blockchain Foundation and a blockchain strategist at the Said School of Business at Oxford University. In addition, she is also an expert in MIT’s blockchain business applications and is the chief strategy officer of global strategy. Tatiana has been invited by the European Parliament to participate in the Intercontinental Blockchain Conference and by the Brazilian Parliament to participate in the public hearing of Act 2303/2015. She is the author of two books: Blockchain: everything you need to know with Cryptocurrency in the international scenario: What is the position of the central bank, government, and authority on cryptocurrency?