NFT stands for ‘non-fungible token’. Non-fungible tokens are tokens that are unique, meaning that each token is only equal to itself, and there is no other token in existence that is the same as it.
This is in contrast to fungible tokens, which are tokens that are interchangeable and are considered equal. For example, a one-dollar bill is equal to any other one-dollar bill in the world.
Non-fungible tokens are used to represent digital assets, which can range from in-game items, digital art, in-app items, and more.
What is the technology underlying NFTs?
Ethereum, a decentralized platform that powered the initial token boom in 2017 and has been leading the surge of cryptocurrency interest, alongside Bitcoin in 2020 and 2021. Ethereum is the technology that enables the creation and trading of non-fungible tokens. The ERC-721 standard is the technical standard that enables the creation of non-fungible tokens on the Ethereum blockchain. NFTs are a subset of the ERC-721 token standard. NFTs are made for the sole purpose of being owned and transacted whereas ERC-721 tokens can be transacted and owned. ERC-721 is a specific token standard that is based on the Ethereum blockchain. It is specifically made for the creation of non-fungible tokens. A new Ethereum standard called ERC-1155 allows for “semi-fungibility” by providing a superset of ERC-721 functionality.
There are a number of platforms on which NFTs can be created, traded, and used. The most notable platforms are OpenSea, Rarible, Super Rare, Mintable and Niftygateway. Users can also swap NFTs outside exchanges through the use of wallet addresses and cryptocurrency wallets such as MetaMask.
What are the typical uses of NFTs?
NFTs have a wide range of potential uses. One of the most prevalent uses are in digital collectibles. These are used to represent digital assets like digital art, in-game items, in-app items, and more. In the blockchain gaming space, NFTs are called cryptocollectibles. NFTs can be traded with investors or enthusiasts on exchanges like OpenSea. Usually, NFTs are dropped at a scheduled time or released at-will by artists on marketplaces platforms.
One of the most promising uses has been for sports collectibles. The National Basketball Association (NBA), along with DapperLabs, has created a platform for NFTs called NBATopShot. NBATopShot allows fans to buy and collect packs of moments, which are short video clips of players showcasing their basketball skills, as well as sell moments individually to other users on its marketplace. The platform has quickly grown to several hundred thousand users in the course of a few weeks.
Similarly, NFTs are used in gaming. Games such as Cryptokitties and CryptoPunks are built on the Ethereum blockchain that utilize NFTs for gameplay. There are new games utilizing NFTs daily and projects continue to grow at scale with more players and more engaging gameplay.
Why are people paying more attention to NFTs now?
There are a few reasons why people are paying more attention to NFTs now than in the past when the initial hype was around CryptoKitties and CryptoPunks.
Volume
NFT investors, enthusiasts and artists are growing in numbers and in their spending. The total transaction volume in USD has grown exponentially for NFTs throughout late 2020 and early 2021. Now, it’s common to see hundreds of millions of dollars of NFTs transactions being processed monthly. This will likely continue to grow over the near and long-term as more people enter the space.
Media Attention
NFTs have been featured heavily across major publications in the first quarter of 2021. Most of the coverage has focused on celebrity involvement in NFT projects, or artistic drops by renowned or respected artist. Also, record breaking sales for digital art have regularly been reported by the media to show the growing enthusiasm of collectors who spend often millions of dollars on just a single piece of digital art.
COVID-19
Stay-at-home orders across the world have made people more accustomed to virtual environments and spending time online. This has arguably led to a shift in interest in investing or speculating activities that are done online, such as trading stocks or cryptocurrencies. By extension, NFTs are assets that can be purchased online and bought by collectors who foresee an increase in their value.
Technology
The vast improvement in blockchain technology and adoption by the masses as well as the simplification of NFT asset wallet transfers have fostered growth and helped enthusiasts connect with one another and seamlessly do business with a few taps of a mobile app. The rewards are also incentivizing to join the rush as many boast online of flipping digital art within minutes of initially acquiring pieces.
Entertainment
Hundreds of online games selling or awarding NFTs to gamers have been released the past several months. These have built communities who get hooked on the gameplay and believe in the value of the gameplay economics, thus investing time and money into developing their characters or gamer profiles.
Conclusion
NFTs have had their breakout year in 2021. Although many speculate the growth is mostly driven by COVID-19, upon closer examination there are a number of factors which have led to the timely growth and interest in the space. It is expected that more and more companies and artists will throw their commitment behind building interest around NFTs which will further drive adoption and growth of the sector.
