NFT: Trending Topic or Overrated? – Get to know the most important basics of non-fungible tokens in this article.
NFT has become one of the most popular search terms in 2021.
The hype about the digital, unique assets has meanwhile reached the mainstream and inspires countless artists and art fans. This has not only created a new source of income for the producers but has given the entire area of Decentralized Finance (DeFi) a further added value and area of application.
What exactly is an NFT and is it worth investing in NFT?
We get to the bottom of the new trend and explain what is hidden behind the term. In addition, we go into the various areas of application of the NFT, why many NFTs are currently being traded for several million US dollars and why they could revolutionize the art market.
What is an NFT?
NFT is an abbreviation for Non-Fungible Token. As the name suggests, these are non-fungible tokens. This means that the NFTs are not interchangeable.
Every NFT is unique.
This is an important and decisive difference to known fungible coins and tokens such as Bitcoin (BTC) or Ethereum (ETH). In the case of classic cryptocurrencies, all coins and tokens are the same as one another.
To understand the subject of NFT, let’s take our classic fiat currency as an example: the euro.
Each euro represents a fixed reference amount and is fungible. It does not matter which 50 euro note is used at the checkout – neither the customer nor the seller. All notes with a value of 50 euros can be exchanged with one another as required.
It looks very different with an NFT. Here you can, for example, imagine a real Picasso, which only exists in this form in the world. This differs from all other works of art by Picasso and other artists. He is one of a kind.
An NFT thus certifies the fact that you are in possession of the unique work of art by Pablo Picasso.
NFT Coin: What are non-fungible tokens used for?
Unique goods from the digital and real-world can be displayed with an NFT. It is an entry in the blockchain that records the ownership claims of all kinds of goods.
This means that the owner of the respective NFT can digitally prove his ownership claims at any time.
A good example of this is purely digital art objects such as the CryptoKitties from 2017. There are thousands of these digital collectibles, but each of them is unique. All cats differ in their shape, eye color, fur, background, etc. In addition, certain attributes are less common than others that are sometimes decisive for the value.
All information about the various attributes of the cats is stored in an NFT token and immortalized on the blockchain. So if you have bought a CryptoKitty, you have the associated NFT. This makes it possible for collectors to trade their collectibles decentralized and without possible forgeries or other frauds.
This created another standard on the blockchain that could revolutionize the art market and other illiquid industries. These include digital identities, licenses, contracts, and many more, which we will go into in more detail later.
How does an NFT work? – ERC721 standard
Most NFTs are based on the ERC721 standard on Ethereum.
This is mainly due to the great network effect and track record from ETH. In addition, the ERC721 standard is the first of its kind and is adequately documented. This means that developers have no difficulty finding their way around.
With the ERC721 standard, issuers can easily create an NFT with the necessary information with just a few clicks. The programmers have templates available for this to perpetuate the associated smart contract in the Ethereum blockchain.
As a result, Ethereum has positioned itself at the top in the area of decentralized exchanges and loans and in the area of NFTs.
ERC721 is the basis on which non-fungible tokens are built and enables the creation of unique digital objects.
Applications of NFTs at a glance
In the following, we look at the different application areas of NFTs. This is not just about digital art but also about other areas that have not yet made it mainstream.
NFT Art – Digital Art and Collectibles
NFT art, i.e. digital art, is by far the largest area of application for NFTs and is mainly responsible for the current hype.
As the example of CryptoKitties has already shown, digital art can be mapped on the blockchain in the form of an NFT. As with Bitcoin, users enjoy 100% control over the asset and can prove their ownership claims at any time in a forgery-proof manner.
The NFT Art Market now consists of funny-looking cats and millions of different digital art objects. An international NFT art market has developed with various decentralized NFT marketplaces where artists and art fans can come together.
NFTs for the traditional art market
There is purely digital art in the form of NFTs and real works of art that have been tokenized in a non-fungible token.
The international art trade has long struggled with a completely illiquid market, forgeries, and theft, which pose major problems for buyers and dealers.
NFT as a problem solver in the art market
It is tedious to check the authenticity of a work of art. In addition, the barriers to entry are extremely high, the market is not sufficiently liquid and transport is costly and risky. NFTs solve most of these problems and create new opportunities.
So a gallery or museum can exhibit a work of art on the blockchain in the form of an NFT. The NFT represents the ownership claims to the real work of art. So whoever owns the NFT automatically owns the respective work of art in the real world.
This allows dealers and buyers to trade their works of art on the Internet without worrying about the authenticity of their works. In addition, NFTs are finding a much more liquid market that works purely digitally and without middlemen.
This means that the work of art can change hands countless times a day, without central authorities and costly transport costs.
So NFTs solve the biggest problems in the art world – counterfeiting, theft, illiquidity, and transportation.
NFT Games: Online games in combination with blockchain
Online games like Fortnite are very popular. Among other things,, because of the possibility to modify/improve your character in the game with different skins (clothes, weapons, etc.). But the various skins are under the control of the game manufacturers and do not belong to the buyers.
In addition, there is little or no transparency in the number and issuance of the respective skins. Trade is also severely restricted. Nevertheless, many fans pay several hundred euros for skin and often fall for fraudsters.
This is where NFTs can help. The game manufacturers could output their skins in the form of NFTs on the blockchain and thus give the user control over the in-game collectibles. That would increase the flexibility of the players when trading skins and provide a lot more transparency.
Although NFT could significantly improve, there are currently few reasons for game providers to switch to NFTs. They currently enjoy full control over creating new skins, and they can also earn money from trading via, in some cases, internal marketplaces. The skin (money) printing machine is not going to give away the skin (money) printing machine that easily.
Nevertheless, many small game developers have recognized the hype and want to score points with gamers with NFTs. It may take a long time before the major providers recognize and implement this hype.
NFT for tickets
Various organizers have problems similar to those of the traditional art market. The tickets to the respective events are repeatedly counterfeited and sold illegally. The buyers are usually left with the costs and cannot take part in the desired event.
Since most tickets are now traded online, NFTs could solve a real problem here. Each ticket could be clearly defined with an NFT on the blockchain and secured against forgery. This means that buyers no longer have to worry about a possible counterfeit if they buy tickets from private sellers.
It would also bring a wealth of new information for the organizers to take into account the interests of the audience for the next event. This is where the organizers and visitors of the events benefit from the new technology.
Documents and identities in the form of NFTs
Another area of application for NFT is identities and various documents from the real world. Contracts, ID documents or licenses can be issued in the form of an NFT.
This makes this information forgery-proof and gives the owners the opportunity to access it digitally from anywhere in the world and to assert their claims.
In addition, such NFTs could also facilitate communication with various authorities. In this area of application, however, it is not about trading your personal data, but about the use of personal data and possible verifications by authorities and service providers.
Conclusion: NFTs are here to stay
NFTs are currently enjoying enormous hype and are trendy. The interested parties have long ceased to be the usual crypto advocates but have also been artists and buyers from the traditional art market.
With NFTs many problems of the traditional art market have been solved and a new digital art market has been created. This gives artists a lot more opportunities to offer their art to the right target group and generate another source of income.
Art forgeries are a thing of the past with NFTs and enrich the art trade with more security and trust. In addition, purely digital art objects are also very popular and change hands for several million US dollars in some cases.
The NFT hype is being driven further upwards by many well-known auction houses and artists. It isn’t easy to estimate how sustainable the current development is. Even with traditional art, the prices for certain works of art often cannot be logically understood.
Investing in an NFT always involves a high level of risk. Nobody can say how much each NFT will be worth in a few years. The assessment of the real value is very subjective, and therefore it is hardly possible to set a standard for pricing.
Nonetheless, NFTs offer unique opportunities that have not existed before. Therefore, we can assume that NFT technology will find a firm place in the decentralized world. NFTs are here to stay.