NFTs, or non-fungible tokens, are a type of cryptocurrency token containing an original digital signature that makes them unique. The signature is a virtual certificate, enshrining rights to a specific object, such as a meme, photograph, visual artwork, video, or music.
Every NFT exists in a single copy, while all the data about its creator and seller, buyer or buyers, and all transactions involving it is stored on the blockchain.
The NFT market is currently bouncing back after a miserable end to 2022. According to a report by DappRadar (a platform specializing in analyzing decentralized applications, or DApps), NFT prices skyrocketed at the beginning of the year, as did the number of non-fungible tokens sold.
In January 2023, 9.2 million purchases were made, which is 37% more than the figure for December 2022. Trading volumes also increased markedly and reached USD 946 million, up 38% from December.
What can be sold as an NFT?
In theory, you could buy or sell anything as an NFT. Anything that has a digital form or can be digitized can easily be turned into a non-fungible token.
- Images (memes, photos, illustrations, paintings, etc.)
- Audio files (music, podcasts, etc.)
- Video files (video clips, films, and TV series)
- Text-based content (posts, tweets, etc.)
- Metaverse content (maps, game characters, in-game assets, 3D models)
- Websites and IP addresses
Any unique item can become an NFT – it could be a painting by Salvador Dali or a street artist. The NFT of the street artist's image is unlikely to become famous or command a high price, however, and in general, it's only objects of value minted as NFTs.
Artist Mike Winkelmann, better known as Beeple, sold an NFT of his artwork Everyday: the First 5000 Days for a record USD 69.3 million. It consisted of a JPEG file containing all the images he had created over 5,000 days.
Blockchain company Injective Protocol bought the painting Morons (White) by the English artist Banksy for USD 95,000 at a New York gallery, converted it into an NFT, and then set quite literally set fire to the original. The canvas has ceased to exist physically but lives on as a digital entity.
Canadian artist Kristina Kim designed a minimalist model of a house on Mars, minted it as an NFT, and sold it for USD 520,000.
DJ 3LAU became the first musician to sell his album in an NFT format. He received a total of USD 11.6 million for his collection.
A gamer purchased a rare pink dog courier in the DotA 2 game for USD 38,000. The dog can be used to transport items in the game.
A Pokemon fan bought an NFT of a collectible card featuring the Pikachu character for USD 250,000.
The co-founder of Twitter, Jack Dorsey, sold his first-ever tweet as an NFT for USD 2.5 million.
The list goes on. But is the land of NFTs such a happy place, and is the market thriving?
The other side of the coin
Just a couple of years ago, it seemed as though NFTs were a new stage in the development of digital art. Today, however, people have identified many shortcomings in the technology, and the phenomenon of non-fungible tokens is increasingly being viewed as a bubble.
Scandals, court summonses, and user dissatisfaction are becoming increasingly common in the NFT space. For example, Miramax opened a lawsuit against Quentin Tarantino over his attempt to create a Pulp Fiction NFT collection. The company, which owns a significant part of the rights to this masterpiece, considered the creation of the collection for subsequent sale to be a contract violation.
Initially, collectors were very attracted to NFTs because they purport to confer ownership rights over a given object. They are positioned as rare commodities, sold mostly through auctions.
An NFT is nothing more than a certificate with a link to a file. The token itself is unique and non-exchangeable, but it can be linked to any file an unlimited number of times. Further, using images and other digital objects that have already been linked to other tokens is not prohibited. The creator of an image can sell it as many times as they want and create as many NFTs as they wish.
Non-fungible tokens were supposed to help artists monetize their creativity but have only made life more difficult for them.
There are several separate issues to unpack here:
- Anyone can link NFT to any image without verifying its authorship. According to the brother of the artist Qing Han, better known as Qinni, her works were copied and put up for sale after she died of cancer.
- NFT marketplaces do not respond to complaints from authors who have had their content stolen. It is possible to remove works, but the complaint verification procedure takes a very long time. On OpenSea alone, artists submit dozens and even hundreds of complaints daily.
- Artists sometimes even have to close their galleries. This was the case for comic book artist Liam Sharp, who has created Green Lantern and Wonder Woman comics for DC. He was forced to shut down his page on DeviantArt after his works were stolen and put up for sale as an NFT collection.
- Bots are used to create NFTs of tweets without the consent of their creators. The @tokenizedtweets bot has been used to link tweets to NFTs and put them up for sale – without the author's knowledge. For example, the bot created an NFT containing brand new (at the time) artworks created by the Russian artist Weird Undead and put it up for auction on OpenSea.
How to create, sell, and buy NFTs
Today, there are many NFT marketplaces where you can create, sell, and buy non-fungible tokens. Some contain diverse NFTs, while others specialize in video games, artworks, and more.
Creating an NFT is quite simple. You only need a cryptocurrency wallet and the digital file you plan to mint as a non-fungible token. You can then go to the NFT marketplace of your choice, create the NFT, give it a name, make a description, and set a price for your non-fungible token before putting it up for sale.
If you don't plan to sell NFTs and want to buy one, you can do this on the same marketplaces.
NFT standards vary based on the purposes and uses for which they are created, and there are many of them, especially when it comes to GameFi NFTs. The most important general standards are ERC-721 and ERC-1155.
- ERC-721 was the first NFT standard on the Ethereum network and is the most widely used today. It was created in 2018 due to the insufficient functionality of ERC-20, given that tokens using this standard are interchangeable or fungible and, therefore, not suitable for confirming ownership of a unique object.
- ERC-1155 is, in fact, an extension of the ERC-721 standard and was developed to address several shortcomings with its predecessor. Each ERC-721 token is represented by its smart contract, so a separate transaction is needed for each token. Imagine you have to transfer a hundred items inside a game, and you need to pay a commission for each transaction.
The ERC-1155 standard allows users to share multiple ERC-721 tokens using a single smart contract. Moreover, the smart contract can represent ERC-20 tokens and ERC-721 and even handle both simultaneously. The main advantage of this standard is its ability to combine fungible and non-fungible tokens in a single transaction.
Other standards are used for NFTs in addition to Ethereum. These include the BNB Smart Chain, Tron, Cosmos, and more.
Intellectual property rights to objects minted as NFTs
The rights provided by an NFT to its purchaser are specified in the smart contract. As a rule, copyright remains with the object's creator, and the buyer receives property rights to the digital content. For example, you would have the right to resell the NFT or allow someone to use your token for advertising purposes. This can be compared to purchasing a painting: you become the owner of the canvas as a physical object, but the copyright remains with its creator. This means you don't have the right to claim to be the creator of the work.
Let's say, for example, you've purchased a monkey from the Bored Ape Yacht Club NFT collection. This doesn't mean you can prevent people from looking at it, downloading it, or using it, but you will be the exclusive owner of the monkey, and everybody else will have to settle for a copy. The blockchain records that you purchased the monkey previously created by its original owner, whose data is stored on it.
There's another helpful comparison: is the painting by a famous artist hanging on your wall an original or a reproduction?
Key NFT trends for 2023
There are quite a few trends in the space. Here are a few to watch out for over the next few years.
- NFT lending. This is a relatively new approach to issuing and receiving loans. The basic idea is the borrower deposits an NFT as collateral and receives cryptocurrency in return. The NFT is returned to its owner when the credit obligations are repaid. Many platforms in the DeFi space already offer this lending method, such as stater.co.
- NFT games. As non-fungible tokens become increasingly popular, gamers have begun to see their potential in video games. All kinds of in-game items can be minted as tokens, such as avatars, weapons, and clothing, as well as bonus points and new levels. Players who earn a rare NFT in a game can sell it for a profit and make good money doing it.
- NFT tickets are another trend in the world of non-fungible tokens. Event organizers could, for example, create a limited number of NFTs and hold an auction where those wishing to attend the event can bid on tokenized tickets. The Welook and Radario platforms allow users to create NFT versions of tickets.
- Digital twin NFTs allow you to reproduce any product or service using virtual reality and modeling tools. Using these technologies, creators can make digital copies of tangible goods and services. For example, major companies like Nike, Adidas, and Gucci have released virtual sneakers that anyone can buy and wear in the metaverse.
- iNFTs, or "intelligent NFTs," are a trend that first emerged in 2022 and involves the integration of NFTs with AI. Alethea AI is an "intelligent metaverse" company working on developing AI technologies. It seeks to create an entirely new class of smart assets with AI-powered personalities, which can grow and evolve based on the data they receive. The company has already made the smart NFT Alice, which has powerful self-training capabilities.
- The latest trends in NFT art are metaverse galleries and auction houses. The galleries allow artists to digitally display their creations in the metaverse, while auction houses are also on the rise, allowing participants to compete for the right to become the sole owner of a unique token.
- NFTs also have a role to play in the real estate sector. Non-fungible tokens could solve the industry's most significant issue – proof of ownership and transfer of assets. This is because NFTs allow parties to confirm ownership in minutes.
An NFT is a unique token tied to a specific object, confirming that its owner has certain rights to the object in question.
Non-fungible tokens operate using blockchain technology and smart contracts. NFTs only exist in a single copy, allowing anybody to view their history and discover who owns them.
Today, the technology is most prevalent in art, video gaming, and collecting.
Anyone can create, sell, or buy NFTs. You only need a crypto wallet and a digital file to be "sewn" into the non-fungible token.
People canney with NFTs thanks to their prominent uniqueness and potential for price growth.
Trends over the last few years show that NFTs are increasingly penetrating all areas of life.