[Part 4 in our web3 learning series]
Non-Fungible Tokens, or NFTs, are a type of digital asset that has recently gained a great deal of attention in the art and collectibles world. In essence, they are unique digital tokens that represent ownership of a specific asset, be it a piece of artwork, a video clip, or even a tweet. Unlike their fungible counterparts, such as cryptocurrencies like Bitcoin or Ethereum which are all interchangeable with one another, NFTs are one-of-a-kind and carry with them a digital signature that proves their authenticity and ownership.
The history of NFTs can be traced back to the early days of the internet, where digital assets and intellectual property were often copied and shared without permission. The introduction of blockchain technology in 2008 with the creation of Bitcoin, laid the foundation for the development of NFTs. Ethereum, which launched in 2015, brought smart contracts to the table, allowing developers to create more complex digital assets such as NFTs. As such, NFTs are essentially built onto of smart contract platform the most prominent being ETHEREUM. The smart contracts describing the metadata of the NFT (such as its rarity and various coded "characteristics" of the token) are stored, and secured by the underlying blockchain.
SMART CONTRACT STANDARDS
ERC stands for "Ethereum request for comment," and "request for comment" is a similar concept to that devised by the Internet Engineering Task Force as a means of conveying essential technical notes and requirements to a group of developers and users.
The ERC-721 standard, introduced in 2018 and pioneered by the CryptoKitties project, is an Ethereum-based specification for non-fungible tokens. This standard defines how unique tokens are created on the Ethereum blockchain, detailing how they can be managed and how their ownership can be transferred. It is now used by many NFT marketplaces and has become the most popular standard for NFTs. The ERC-721 standard allows developers to create completely unique digital assets and define their own attributes, such as rarity, appearance, and overall value creating a 1/1 token which is individualised and "non-fungible".
Other token standards include the Azuki pioneered ERC-721A (an adaption to the ERC-721 to facilitate batch minting, lowering fees) and ERC-1155 which are generally multiples of the same token, so 1/x.
NFTs have quickly gained popularity in the art and collectibles world, with some digital artworks selling for millions of dollars.
Profile Picture projects (such as the Bored Ape Yacht Club) have seen massive success given the accelerant that social media adds to the dynamic market allowing brands to expand and provide new and unique ways to interact with holders of their NFTs.
The innovation, uniqueness and the ability to prove ownership of a digital asset has opened up new opportunities for artists and creators, offering a way to monetize digital creations in a way that was previously impossible. Supporting platforms such as OpenSea and X2Y2 provide martketplace services to securely trade these assets to effectively provide a UI and UX for users to interact with the Ethereum Blockchain (and others) and transfer ownership of these digital objects.
One of the early limitations of NFTs were their energy consumption. As NFTs are smart-contracts written and stored on a blockchain, they required a significant amount of energy to create and maintain. However, developments such as the Ethereum 2.0 upgrade have helped to address this issue, reducing energy usage by up to 99%.
In conclusion, NFTs are a new and exciting digital asset class that has garnered a lot of attention in recent years. The composability and open source nature of the blockchain allows projects, artists and creators to engage with their audience in new ways and in some cases actively reward participation. While the technology is still nascent, the popularity of NFTs is growing, and we can expect to see more developments and innovations in this area in the near future.
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