What is NFT?
An NFT, which stands for non-fungible token, is a unique unit of data employing technology that allows digital content.
Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other.
Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions.
NFTs evolved from the ERC-721 standard. Developed by some of the same people responsible for the ERC-20 smart contract, ERC-721 defines the minimum interface—ownership details, security, and metadata—required for the exchange and distribution of gaming tokens. The ERC-1155 standard takes the concept further by reducing the transaction and storage costs required for NFTs and batching multiple types of non-fungible tokens into a single contract.
NFTs have the potential for several use cases. For example, they are an ideal vehicle to digitally represent physical assets like real estate and artwork. Because they are based on blockchains, NFTs can also work to remove intermediaries and connect artists with audiences or for identity management. NFTs can remove intermediaries, simplify transactions, and create new markets.
Much of the current market for NFTs is centered around collectibles, such as digital artwork, sports cards, and rarities. Perhaps the most hyped space is NBA Top Shot, a place to collect non-fungible tokenized NBA moments in digital card form. Some of these cards have sold for millions of dollars.
Recently, Twitter's (TWTR) Jack Dorsey tweeted a link to a tokenized version of the first tweet ever, in which he wrote: "just setting up my twttr." The NFT version of the first-ever tweet sold for more than $2.9 million.
NFTs are created through a process called minting in which the information of the NFT is published on a blockchain. At a high-level, the minting process entails a new block being created, the information of the NFT being validated by a validator, and the information being recorded. This minting process often entails incorporating smart contracts that assign ownership and manage the transferability of the NFT.
As tokens are minted, they are assigned a unique identifier directly linked to one blockchain address. Each token has an owner, and the ownership information (i.e. the address in which the minted token resides) is publicly available. Even if 5,000 NFTs of the same exact item are minted (i.e. general admission tickets to a music festival), each of the tickets has a unique identifier and can be distinguished from one another.
- NFT revolutionized the traditional fine art trading models
Digital art generally refers to artistic work created using digital technology. Unlike traditional artwork, digital art is more flexible when it comes to the form of expression. NFT can serve as a transactional 'entity' for digital art by mapping the file of a certain digital artwork. In such trading, NFT is not only traded as copyright or ownership, but also serves as a unique link between the artist and the collector.
- Innovative circulation, collecting, use, and flexibility
The NFT crypto-collectibles market allows users to trade and transfer NFT collectibles conveniently and auction their collectibles at a fraction of the cost. With the NBA Top Shot Packs, users have the chance to get a rare collectible worth tens of thousands of dollars, which attracted many people. In the Cryptovoxels virtual world, users can showcase NFT artwork they own in the game, and it has value in the virtual world.
- Achieving artwork traceability
In the traditional collectible market, there is often a concern that when one purchases an artwork, the item may be deemed to be fake by an authenticator. Once the NFT is registered on the blockchain and the public offering is completed, all the data can be verified publicly and independently. As NFTs are unique and transferable, one can use them to prove his/her ownership in case of forgery or infringement. In the world of blockchain, NFT protects the artists' copyright, which further increases the value of NFT artworks.
- Building a new incremental art market
As of March 2021, the cumulative trading volume of NFT artworks reached $546 million, with a total transaction count exceeding 190,000. In the world of blockchain, NFT can be combined with many elements, including lending and gaming. NFT is also becoming more and more accessible, as a painting, graffiti, or a toy can be an NFT. If these assets can be successfully "NFT-ed", the market expansion to come will be extraordinary.
- Technology: NFT is being used in many areas in real life
Blockchain-based NFT was created to give digital assets a unique marker. NFT is valuable because it's authentic, transferable, and provides ownership. The top 3 NFT applications are collection, arts and sports. They accounted for 48%, 43%, and 4% of the global NFT market in the NFT market composition of 2021.
According to statistics and research, the Ethereum NFT sphere has seen 8.22 million ETH in trading volume across 2.46 million unique wallets.
The NFT market possesses a total market cap of more than $11.3 billion. To better facilitate an understanding, this is equivalent to and greater than the Gross Domestic Product of many small countries such as Kosovo, Togo, and Somalia. Staggeringly, the total value of the NFT market exceeds in value all the goods and services produced in many nation states!
This data comes from a report published by Verified Market Research (VMR) which further predicted a compound annual growth rate of 33.7% in the following eight years and a prediction that the NFT space will see its total market cap climb to $231 billion by 2030.
The central driver of growth and demand for NFTs currently is collectibles. They have penetrated key industries starting with art and music but rapidly expanding to film, sports, fashion, gaming, the metaverse, ticket sales, supply chains, and luxury goods. Few areas are untouched by NFT technology, and they are steadily growing beyond their fashionable purpose of social clout.
The year 2021 saw NFTs explode and experience parabolic growth. Accompanied by a raging bull market, an incredible amount of capital washed into the space. Despite harsh criticism from detractors revolving around two central points – the environmental impact, and the speculative bubble – NFTs have remained, and the bear market forces the sphere to move towards greater utility.
The third quarter of 2021 saw NFT trading volume increase by more than 700% compared to Q2 of the same year. Thousands of NFTs change hands daily across various marketplaces, with anywhere from 15,000 to 50,000 being exchanged in any given week. This figure shows a drastic increase since 2017 when NFT trading volume was limited to less than 100 NFTs a week.
OpenSea has seen 1.85 million transactions, 300,000 unique wallet addresses interacting with smart contracts, and 350,000 ETH trading volume in September 2022. And despite the declining overall volume, the number of individual users and transactions remains steady.