Take a moment and think about how the world around you has changed. Retail has become Amazon, libraries have become Wikipedia, and instead of visiting museums, you may soon be appreciating digital NFTs.

 

In our article, we will show you why NFTs are more than just art and whether you will soon receive your university diploma as an NFT.

 

What are NFTs?

NFTs (Non-Fungible Tokens) are digital proof of ownership of intangible assets. These assets are typically unique, non-fungible digital assets (tokens). Blockchain technology allows ownership of these tokens to be clearly proven and transferred.

 

Examples of this are digital artwork, computer game objects, digital tickets, or domain names. But, it can also be digital proof of ownership of physical objects like paintings or other individual items.

 

The opposite of NFTs is fungible assets (fungible tokens). This interchangeability means that such a token can be replaced with an identical token at any time. Cryptocurrencies are fungible digital blockchain-based assets.

 

1 Bitcoin is always 1 Bitcoin, regardless of when it was created and what block it is currently in. A bitcoin can always be exchanged for another bitcoin without limitation

 

In the real world, $10 is always $10, whether it's in a bank account, a PayPal account, or a crumpled bill in your wallet. Interchangeability is there per se. You can also exchange a $10 note for two $5 notes or five $2 coins. But, interchangeability can be relative and subjective. A coin can one day become a rare and highly valuable collector's item due to its special characteristics.

 

A business class flight ticket is not interchangeable with an economy class ticket. And in economy class, a window seat is not the same as an aisle seat.

 

This small difference creates new challenges for NFTs on the blockchain. Of course, there can be several identical NFTs and yet they are rare and relatively unique if only 10 of them exist worldwide.

 

Blockchain technology and NFTs

Before blockchain, many non-fungible digital objects already existed. Be it computer games, digital tickets, domain names, or individual elements of access to social networks, the computer world was practically full of NFTs.

 

But, ownership could not be clearly proved, nor was there any possibility of the formal transfer of ownership of the object to someone else. There was no consistency and thus no standardized way to trade these digital things with sufficient liquidity.

 

And this is exactly where blockchain technology comes in. Entries and transactions on the blockchain are immutable, making ownership of an NFT secure and verifiable. This means that the original and complete ownership history is stored forever on the blockchain.

 

NFTs on a blockchain thus enable unique ownership of copyable files. Fast and cheap shipping allows for a safe exchange and trade.

 

What makes NFTs so valuable?

Why is the demand for NFTs increasing? It's not just digital deficits or uniqueness. Rather, it is personal benefit and passion stemming from the origins of NFTs.

 

The benefits are most obvious. When an NFT ticket grants access to a very important event, there is a clear reason to buy that NFT. It applies to objects in a computer game that gives special powers to the game's characters.

 

But why would you pay a lot of money to buy an NFT artwork? Many are asking this question. And some doubt whether art can even be digital. But still, the question arises as to why people buy expensive paintings or expensive collector's stamps.

 

It is an emotion that triggers the origin of collector's items. The story behind it creates real value.

 

An autograph card is also a piece of paper with some ink on it. But if the signature comes from a very distinguished person and the reason for the signature was very special, the value increases accordingly.

 

In the era of digitization, even works of art and signatures of celebrities can now be dematerialized and displayed on the Internet.

 

NFTs on the Ethereum Blockchain

Ethereum is currently the largest smart contract blockchain. Even with NFTs, Ethereum has been clearly ahead since 2017. Be it Crypto Punks or CryptoKitties, the first Jack Dorsey tweets, or Beeple collages, all of them, as well as most marketplaces, are part of the vast NFT world on Ethereum.

 

Token-Standards

All Ethereum tokens, whether cryptocurrency or NFT, can be assigned to the Clear Standard. Standards are an important building block for how tokens work. Essential features such as ownership, access, and portability can only be ensured with appropriate standards.

 

Standards are also essential for software development. In this way, basic functionality and behavior are clearly evident to all involved.

 

The three most common Ethereum token values are ERC20, ERC721, and ERC1155. ERC20 for fungible tokens (exchangeable tokens like cryptocurrencies). and ERC721 and ERC1155 for non-fungible tokens (non-fungible tokens = NFTs).

 

NFT project Azuki has established a modification of the ERC721 standard with ERC721. It is often used by new NFT projects. The advantage here is significantly lower network fees.

 

The ERC20 standard defines the number of addresses. The exact number of cryptocurrencies held for each Ethereum address is always visible.

 

With the birth of CryptoKitties, the important NFT standard ERC721 was created, on which most NFTs are still based today. ERC1155 is another NFT standard developed by Enjin.

 

ERC1155 is a hybrid of exchangeable and non-exchangeable tokens. ERC721 maps owners to unique IDs, while ERC1155 has nested mappings from IDs to sets of owners.

 

Disadvantages of Ethereum for NFTs

Although Ethereum is the largest NFT platform, it is not always the first choice for every type of NFT. Ethereum is still struggling with the challenge of increasing capacity limits. Thus, creating and trading NFTs sometimes carries extremely high fees.

 

A $100 fee might be trivial for a highly valuable NFT like Beeple artwork. But for many smaller artists who want to sell their work for $100 to $200, such high amounts are a clear deterrent.

 

Against this backdrop, several alternative blockchains have cleverly come forward to bridge this gap in the market. Depending on the NFT use case, there is also a suitable NFT blockchain that promises faster and cheaper trading of NFT. In the next section, we look at alternative NFT blockchains.

 

NFT Blockchain Coins

Since 2020, the value of many NFTs has increased drastically. A major reason is that the cryptocurrency Ether (ETH), on which most NFTs are traded, has risen in price.

 

Also if for deep market knowledge, you have luck or a sixth sense that NFTs may be in high demand in the future, you may be able to make a fortune with NFTs.

 

But, if such speculation is not for you, you can invest in selected NFT coins instead. This is roughly equivalent to investing in ETH. Because these NFT coins are required for fees on the respective blockchains where NFTs are created and traded.

 

The more NFTs are in demand, the more fees are incurred, which increases the demand for these coins and automatically affects the price.

 

How do you create an NFT?

In principle, it is not difficult to create an NFT and offer it for sale. But, you need some "tools" and some patience.

 

To put it very simply using the example of a digital work of art, you need a file that can be marked by copyright, a wallet, and enough cryptocurrency, such as ETH.

 

With the wallet, you can easily connect to an NFT marketplace, for example with the Metamask wallet on the Opensea platform. As soon as you log in there with the wallet, you can upload digital files in prescribed file formats. NFTs are created and added as entries to the blockchain. This so-called minting is not free but requires fees.

 

We have tested the best NFT wallets for you.

 

After the NFT is generated, the digital artwork will be visible in the marketplace's gallery and available for sale. Then the sale proceeds in cryptocurrency are credited to the respective wallet address.

 

Future potential

Many experts agree on two points. First, NFTs have been hotly debated since 2020 and could be a crypto bull market bubble. And second: NFTs have the potential to change the sports, art, and music industries in the long run.

 

In general, the tokenization of all physical assets and items through NFTs could turn many industries upside down.

 

Some even go so far as to predict a future where almost all activity and economic activity will shift to the Internet. We are talking here about the so-called metaverse, where NFTs can play a central role. It has already started in gaming and the virtual world. GameFi's expansion is already in full swing.

 

For example, in the financial economy of the future, NFTs could serve as collateral for lending. This is already possible in DeFi, as NFTfi and the ETNA network show.

 

Of course, there are no guarantees for such future situations. Many questions remain unanswered. But NFTs probably won't disappear entirely. In the 1990s, few people believed that the Internet would become what it is today.