NFTs have taken the digital world by storm. While most still struggle to understand Bitcoin, mega-corporations, superstars, and professional athletes endorse NFTs. In this article, we’ll learn what Ethereum-based NFTs are, their importance, and how they work.
What Are NFTs?
When you buy a house, the deed that says you own the property is recorded in the county office and made available to the public via the internet. Instead of keeping that record centrally located, imagine the deed being copied and distributed all over the Ethereum network for verification that you own the house. That distributed version of the house deed could be an NFT.
Non-fungible tokens (aka NFTs) represent ownership of unique items digitally on a blockchain. The blockchain the NFT lives on secures the item’s ownership, meaning no one can re-create the same NFT or modify the record of who owns it.
Non-fungible is a term used to describe items that have distinct properties. For example, one handmade necklace will always be different from another. On the other hand, one can exchange a fungible item directly with another without impacting the value received, like a dollar for a dollar.
- Cryptography – A study of secure communications techniques in an adversarial environment
- Metadata – Data that describes some other data. Ex. the caption describing an image
- Whitepaper – Information document used to promote or highlight the features of a solution to a problem, product, or service
Why Are NFTs Important?
NFTs tackle significant problems facing the internet. They have the power to remove intermediaries, create markets, and simplify transactions.
Consider trading a game purchased in the Microsoft store. You cannot barter that game for mp3s bought on iTunes. The ownership of the game or songs still belongs to the respective platform that holds them. NFTs give autonomy back to the artists and users by allowing artists to sell IP rights to their audience directly. The audience could choose to keep the mp3s or sell the artist’s work in a marketplace. Interestingly, NFT marketplaces allow royalties to be returned to the creator whenever the NFT changes hands.
The musician Tory Lanez released a limited edition NFT album that his fans could re-sell for a profit. The move completely cut out streaming platforms. While the idea was revolutionary, the promise of a return did cause some unintended backlash.
When it comes to membership on a website, traditionally, you would have to sign up with your personal information to gain access. With web3, you can hold a specific NFT in your wallet that grants access to the same website. The Bored Ape Yacht Club (currently the largest NFT brand) allows its NFT holders to partake in merch drops, airdrops, and member-only events via its website.
Efficiency is an obvious advantage of using NFTs. They cut out administrative overhead and allow for a modern form of bartering. Additional use cases for the technology are frequently popping up.
How Do NFTs Work?
In the Ethereum ecosystem, ERC-721 is the standard used to build and deploy NFTs. Token standards are the basic code templates used to represent fungible, non-fungible, and interest-bearing tokens on Ethereum. It isn’t necessary to know programming to launch a simple NFT, as NFT marketplaces often provide this functionality.
- Lost or misplaced deed in Florida: Do you need original deed when selling or refinancing a home? Hallandale Florida Lawyers | Broward County Lawyers | HallandaleLaw.com. (2021, April 14). Retrieved November 3, 2022, from https://www.hallandalelaw.com/lost-misplaced-deed-florida/#:~:text=In%20Florida%2C%20when%20real%20estate,for%20inspection%20via%20the%20internet
- Non-fungible tokens (NFT). ethereum.org. (n.d.). Retrieved November 3, 2022, from https://ethereum.org/en/nft/
- Sharma, R. (2022, November 3). Non-fungible token (NFT): What it means and how it works. Investopedia. Retrieved November 3, 2022, from https://www.investopedia.com/non-fungible-tokens-nft-5115211