NFTs, or non-fungible tokens, are a type of cryptocurrency token containing an original digital signature that makes them unique. The signature acts as a kind of virtual certificate, enshrining rights to a specific object, such as a meme, photograph, visual artwork, video or piece of 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 conducted by DappRadar (a platform specializing in the analysis of 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 in the form of 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 painting is unlikely to become popular or command a high price, however, and in general it’s only objects of value that are minted as NFTs.
Artist Mike Winkelmann, better known as Beeple, sold an NFT of his artwork Everydays: 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 a 5,000-day period.
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 in its physical form, 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 really 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 more and more 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 the idea of NFTs, because they purport to confer ownership rights over a given object. They are positioned as rare commodities, sold mostly through auctions.
In fact, 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 to this, the use of 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 want.
Non-fungible tokens were supposed to help artists monetize their creativity, but in fact have only made life more difficult for them.
There are a number of 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 simply 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 of course, but the complaint verification procedure takes a very long time. On OpenSea alone, dozens and even hundreds of complaints are submitted by artists every day.
- 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 knowledge of the author of course. 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 a large number of NFT marketplaces where you can create, sell and buy non-fungible tokens. Some of them contain a diverse selection of NFTs, while others specialize in video games, artworks and more.
The most popular general platforms are OpenSea, Rarible and Mintable.
Creating an NFT is quite simple. All you need is a cryptocurrency wallet and the digital file you are planning 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 actually want to buy one, you can do this on the same marketplaces.
NFT standards
NFT standards vary based on the purposes and uses for which they are created, and there are quite a lot 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 to appear on the Ethereum network and the most widely used today. It was created in 2018 as a result of the insufficient functionality of ERC-20, given that tokens using this standard are interchangeable, or fungible, and are 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 a number of shortcomings with its predecessor. Each ERC-721 token is represented by its own 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 pay a commission for each transaction. The ERC-1155 standard allows users to share multiple ERC-721 tokens using a single smart contract. What’s more, the smart contract can represent ERC-20 tokens in addition to ERC-721, and can even handle both at the same time. 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 creator of the object in question, and the buyer receives property rights to the digital content. You would have the right, for example, to resell the NFT or allow someone to use your token for advertising purposes. This can be compared to the purchase of 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 the fact that it was you who purchased the monkey that was previously created by its original owner, whose data is also stored on the blockchain.
There’s another useful comparison: is the painting by a famous artist that you have 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. When the credit obligations are repaid, the NFT is returned to its owner. There are already quite a few platforms in the DeFi space offering 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 modelling tools. Using these technologies, creators can make a digital copy of real 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 involve the integration of NFTs with AI. Alethea AI is an “intelligent metaverse” company working on the development of AI technologies. It is seeking 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 created 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 biggest issue – proof of ownership and transfer of assets. This is because NFTs allow parties to confirm ownership in a matter of minutes.
Conclusion
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, and they allow anybody to view their history and find out who owns them.
Today, the technology is most popular in art, video gaming, and collecting.
Anyone can create, sell or buy NFTs. All you need is a crypto wallet and a digital file that can be “sewn” into the non-fungible token.
People are able to make money with NFTs thanks in large part to their uniqueness and potential for price growth.
Trends over the last few years show that NFTs are increasingly penetrating into all areas of life.