Recently, NFTs (Non-Fungible Tokens) have been experiencing a trading boom. The NBA has embraced it through Top Shot, Grimes sold a piece of art via NFT for $6 million, the Kings of Leon are planning to release their latest album as NFTs, and interestingly, a non-fungible token was sold at Christie’s for a staggering $69 million. NFTs allows art creators to monetise their digital content, and guarantees the artwork’s authenticity. So, what is all about the NFTs and what technology underlies them? In this article, you will find out the technologies that underly NFTs and they include Bitcoin cash, Flow, ERC-721 and ERC-1155 among others.
What is an NFT?
A non-fungible token is a digital ownership certificate that is tradeable and represents ownership of a unique digital asset. NFTs include digital files such as art, video game items, audio, videos among other forms of creative work. Whereas the artwork itself is reproducible, the NFTs that represent them can be tracked in their specific blockchains: thus, offering the buyers proof of ownership. Blockchains such as Ethereum, Flow, Bitcoin cash all have their respective token standards that define how NFTs are used.
A token is a unit on a blockchain that is used to trace the unique NFT as well as obtain its trading history. NFTs are cryptographic tokens, but are different from cryptocurrencies such as Bitcoin in that they can not be mutually interchanged. NFTs can be used to trade a plethora of digital and physical goods, but they are mostly used to trade virtual art products. The art creators can decide whether to sell a series of digital copies of art prints, or sell the entire ownership rights to the work.
How to Create an NFT
To create an NFT, you need to upload the artwork file to an NFT auctioning platform. NFT auctioning platforms include Rarible, OpenSea, and KnownOrigin. This will create a copy of the artwork file that is recorded as an NFT on the digital ledger that can be traded in cryptocurrency.
Uses of NFTs
NFTs take advantage of creating artificial scarcity of a particular digital artwork by creating just one NFT that has its unique signature. Being artworks, NFTs are identical to autographed products. The have a unique ownership and identity that can be verified using the blockchain ledger. They are used in a wide array of uses such as:
- Collectibles. NFTs can be used to represent collectibles such as card collections that are in digital format. An example of such is a popular Lebron James slam dunk card that was sold on Top Shot’s platform for $208,000.
- Digital art. NFTs started being used in digital art due to their ability to use blockchain technology to guarantee the unique ownership and identity of the NFTs. An example of such is the artwork by Beeple (The First 5000 Days) that was sold for $69 million.
- Video games. NFTs can be used for in-game assets that are controlled by the user rather than the developer of the game. NFTs give users the ability to trade these assets on third-party trading platforms even without the game developer’s permission. An example is a digital land title that was sold in February 2021 for $1.5 million featuring the video game “Axie Infinity”.
Technologies and Standards Underlying NFTs
There are several token standards that have been developed to support using blockchains in gaming. A blockchain is a form of digital ledger that can be duplicated as well as distributed across a series of computer systems. Every block on the chain consists of the number of transactions, and each time that a user makes a transaction on the blockchain, the record of that particular transaction is added to the user’s ledger. These transactions are managed in a decentralised database that is known as Distributed Ledger Technology (DLT). Other blockchains that support NFTs such as Bitcoin cash also have token standards.
1. Ethereum
Ethereum is a form of an open-source blockchain that is decentralised with smart contract functionality. It allows creating indivisible and unique tokens that can be used to represent artwork, virtual real estate, sports memorabilia and gaming. The NFT artwork by Beeple that was auctioned by Christie’s was paid for in Ethereum. That said, the ERC-20 token standards are used for fungible tokens standards on Ethereum blockchain. It has been used to launch several cryptocurrencies and distributed them via initial coin offerings.
The ERC-721 token standard was the first token standard that was used to represent non-fungible commodities on the Ethereum blockchain. ERC-721 being an inheritable solidity smart contract functionality means that developers can conveniently develop new unique ERC-721 compliant contracts. This can be done by importing the contracts from OpenZeppelin library.
More so, the ERC-1155 token standard brings to the NFT world the idea of semi-fungility. It also provides developers with a superset of the ERC-721 token functionality. This means that using the ERC-1155, one could build an ERC-721 token asset.
2. Bitcoin cash
Bitcoin cash is a form of cryptocurrency that belongs to Bitcoin. Bitcoin cash is divided into two: Bitcoin SV and Bitcoin Cash. It trades on numerous digital currency platforms such as Bitstamp, Gemini, Coinbase, Kraken among others with the BCH ticker sign.
The SLP (Simple Ledger Protocol) is used to support NFTs by minting specific non-divisible supply of tokens of 1 without using a minting baton. This results in simple NFTs. NFT1 was first introduced on Bitcoin cash in 2019 as an SLP token structure. The token’s specification codifies a more effective and capable form of NFT that allows the combination of several NFTs together.
3. Flow
Flow is a type of blockchain that was created for crypto games and NFT collectibles. It was developed to support extensive scaling that did not require using sharding techniques: thus, providing fast and cost-effective transactions such as crypto-infused games and NFT market platforms. Flow was created as an alternative for because Dapper Labs’ CryptoKitties had immensely clogged up Ethereum. As a result, Dapper Labs decided to develop a blockchain that would benefit a lot of developers as well as handle the huge demand levels. The resulting blockchain became Flow, and it was designed to support large scale crypto games and NFT collectibles.
The cadence programming of the flow blockchain represents every NFT as resource objects that users can keep in their accounts. These resource objects have specific rules of ownership which are assured by the type system. This means that the NFT can only have one authentic owner, and cannot be copied, duplicated or lost. The objective of these protections is to guarantee owners the safety of their NFTs and that the asset has real value that can be used to trade commodities.
It is likely that Flow will continue increasing in size and popularity. NBA’s Top Shot uses Flow, and has proven that there is a huge potential in blockchain-driven collectibles to get mainstream attention and make huge amounts of money. It is expected that larger audiences will gradually shift to Flow. To realise improvements in throughput and speed, Flow is divided into four nodes namely:
- Collector nodes. These nodes are used to increase efficiency.
- Execution nodes. These nodes are used to increase scalability and speed.
- Verifier nodes. Verifier nodes are used to ensure correctness.
- Consensus nodes. These nodes are used to guarantee decentralization.
Considering the enormous success currently being enjoyed by Top Shot, many developers will start building on Flow. Not only has Top Shot been among the best crypto dapps, but also Flow has been experiencing a surge in developer requests in the first quarter of 2021.
Conclusion
In a nutshell, NFTs are pieces of data that users can use to verify authentic ownership of a digital artwork. Non-fungible tokens differ from fungible tokens in that non-fungible tokens are unique and one cannot directly exchange them for another. NFTs are developed and recorded by the use of blockchain technology. NFTs are a money-making avenue, and they achieve this by using scarcity to create value. Since NFTs are decentralised and don’t have a central administrator, once data has been recorded in the blockchains such as Bitcoin cash or Ethereum, it cannot be altered.
So, artists who want to trade their NFT collectibles can do so by signing up to a marketplace, upload and validate their information on a blockchain of their choice to mint digital tokens. NFTs have been embraced by several big investors. NFTs can potentially be used in the future to track land titles where a token can be used to represent authentic property ownership such as a home.
