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Cryptocurrency, the use of digital tokens on the blockchain to store value, has gained a lot of traction lately. There are two primary types of digital tokens: fungible tokens and non-fungible tokens, or NFTs. OpenSea, the first and largest NFT marketplace, has created a compilation of all relevant information about the latter and named it the NFT Bible. Here are some highlights.
Breaking Down the NFT Bible
With NFTs on the rise, many people are starting to wonder what they are and if they’re worth paying attention to. NFTs are often thought of as only encompassing digital collectibles or art, but there’s much more to them.
Ever since the first NFT standard emerged, experts at OpenSea have kept a close eye on each and every NFT-related project that landed on their marketplace. All this NFT surveillance gave them unmatched expertise on all things NFT, from the history of the technology to where it stands in an ever-changing market. That research led to the NTF Bible — a comprehensive document that includes all you need to know about NFTs.
What’s an NFT?
Remember that cute YouTube video from 2007 where a baby named Charlie bit his brother’s finger? It was a viral sensation, becoming one of the world wide web’s most viewed videos to date. Almost 15 years later, this internet gem became a non-fungible token and sold for £500,000.
In simple terms, NFT are virtual assets. Although they don’t come in a physical form, they can still be sold and exchanged like physical properties. NFTs are all the rage these days, and they’re selling for millions. They may even change the way we create, distribute, and consume digital content in the near future.
The term non-fungible means these tokens are not interchangeable with each other. Or, in other words, NFTs can’t replace or be replaced by another identical item. They’re not currency, and therefore, they do not serve as a medium of exchange like Bitcoin and other types of crypto coins. Some examples of NFTs are game items, collectibles, event tickets, digital art and domain names, to name a few.
What Are the NFT Token Standards?
In the digital world, NFTs gain value due to their rarity. But rather than being organic, this scarcity is programmed into the contracts that regulate the sale and exchange of NFTs. Traditionally, most digital assets lack a unified representation in the virtual ecosystem. NFT developers are able to create and layer standards that define ownership, control access and transfer.
Standards give power to NFTs and ensure assets will behave predictably. They describe how users should interact with the asset’s basic functionality. The first non-fungible standard was built on Ethereum. Today other blockchain protocols like Flow and Tezos are catching up and creating their own. Here are the most common NFT standards.
ERC721
This was the first non-fungible token standard to be created and is still the most commonly used to this day. It can hold unique digital assets such as art and collectibles that cannot be destroyed or duplicated.
ERC998
These tokens are composable, meaning they can have assets organized into complex positions and traded in a single transfer. An ERC998 can be valued and traded. It can hold both fungible and non-fungible tokens and serve as a portfolio to help diversify your assets.
ERC1155
An ERC1155 token can be used to register both fungible and non-fungible tokens with the same address and smart contract. This standard is more commonly used by gamers, where NFTs can represent an in-game transactional currency.
Flow-NFT
Flow uses a language called Cadence for the smart contracts on its network. These contracts can be deployed in a beta state, which means they’re incrementally upgradeable by the original authors. Once the agreement is finalized and released, it becomes irrevocable.
FA2
Also known as TZIP-12, this Tezos standard is a unified token contract interface. It supports numerous token types, including fungible, non-fungible, multi-asset, and non-transferable, giving developers and users a lot of flexibility.
NFT Metadata
In the virtual assets environment, metadata offers a way of retrieving information about any specific token ID. For example, it could let you know the name, description, current owner and any other relevant traits of an NFT. Metadata can be represented on-chain — through the smart contract — or off-chain — independently.
If you decide to store your metadata off-chain, you can choose from the following solutions:
- Centralized servers — This is the simplest way to store your NFT’s metadata off-chain. Yet, this method has some drawbacks to take into account, like the ability of the provider to change metadata at will, or the possibility metadata could disappear if the project goes offline.
- Interplanetary file systems — These peer-to-peer file storage systems that allow metadata to be hosted and replicated across computers in different locations. This ensures the durability and immutability of the information over time.
Myths About Non-Fungible Tokens
There are some common misconceptions about non-fungible tokens. The NFT Bible helps debunk the following myths about these unique virtual assets.
Scarcity Is the Only Factor that Drives Demand
That might have been true in the early days of NFTs where users would rush to buy rare tokens just because they were on the blockchain. However, demand is ruled today by utility and provenance, mainly.
Users are willing to buy NFTs like tickets, art or in-game items because they serve a purpose to them. Additionally, they may be more eager to purchase these virtual assets when their origin is meaningful and complex.
Good To Know
To make and sell an NFT, all you need is the event ticket, image, video, music file or collectible you’re trying to sell and a pre-funded crypto wallet that supports your blockchain of choice. Then you can choose a marketplace and follow their instructions to create your NFT by uploading the file and selecting the price.
Assets Last Forever Thanks to Smart Contracts
Just because smart contracts regulate how NFTs behave and evolve over time doesn’t mean they’ll make their value last forever. Websites and apps are the entities responsible for user access to these assets, and if they crash, the value of these NFTs goes down with them. As long as there are no decentralized apps, the durability of an NFT is tied to the ability of these websites and apps to stay up and running.
The Power of Abstracting the Chain Away
The emergence of hosted wallets with a one-step authentication process has allowed some NFT projects to streamline the onboarding experience. However, centralization has damaged the interoperability of marketplaces and other elements in the NFT world.
The NFT Market
Just last year, the NFT market had roughly $338 million in transaction volume. Yet, in the second quarter of 2021, these numbers escalated quickly. Non-fungible token sales have already reached $2.5 billion so far in 2021. It’s estimated that the value of the global NFT market will grow over 1,000 times in the next 10 years.
Final Take
The exponential growth of blockchain technology and its popularity has birthed a new era of decentralized finance. But to make money in the crypto markets, users need to think outside the box and pay attention to diverse assets, like NFTs.
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