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April 8, 2024
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Welcome to the school.game's beginner's guide to Non-Fungible Tokens (NFTs). In this article, we focus on the basics, like definitions, characteristics, and fundamentals, of this promising blockchain technology segment. Whether you're completely new to the concept or seeking a deeper understanding, this beginner-friendly primer will equip you with the knowledge you need. Let's dive into the depths of the NFT world and make Non-Fungible Tokens crystal clear!
A Non-Fungible Token is a digital asset representing ownership or authenticity of a unique item or piece of content online.
Non-Fungible Tokens are based on blockchain technology and decentralization principles.
They ensure transparent digital ownership and allow the transferability and interoperability of digital assets online in a decentralized way.
They are typically used to represent digital artwork, collectibles, virtual real estate, or any other works like essays, presentations, or lectures.
Simple, right?
Decentralization means spreading power and control across many computers instead of relying on one central server or authority.
In blockchain, everyone helps to run the network, making it more secure and resistant to censorship or manipulation.
Transactions are recorded in a way that can't be changed, making NFTs transparent and trustworthy while reducing the risk of hacking or interference.
Each of the Non-Fungible Tokens contains metadata describing the represented asset like information about its creator or ownership history.
It serves as a decentralized and immutable ledger, ensuring the authenticity and ownership of the NFT.
NFTs are an open, fair, and reliable type of digital asset that you can own and manage.
Unlike cryptocurrencies such as Bitcoin or Ethereum, which are fungible, NFTs are unique and cannot be exchanged on a one-to-one basis.
In economics, fungibility refers to the property of a good or commodity that allows it to be exchanged or substituted with another identical item of the same value.
For example, traditional currencies like the US dollar are fungible because one dollar bill can be exchanged for another dollar bill of equal value.
Each of such items has its distinct properties, characteristics, and attributes that set it apart from other digital objects. Its uniqueness makes it very valuable in various fields, such as:
One of the key features of NFTs is their ability to enable creators to monetize their digital creations by selling them as unique, indivisible assets.
For example, the Non-Fungible Tokens have gained popularity in the art world, allowing them to sell their artwork directly to collectors, bypassing traditional intermediaries like galleries or auction houses.
Non-Fungible Tokens can be either bought or created through a process called "minting".
Minting plays a crucial role in enabling tokenization and facilitating ownership, transferability, and authenticity in a decentralized manner.
In the context of cryptocurrencies and blockchain:
token creation process (tokenization) = adding a unique identifier for the new digital asset
+ recording it (attaching) to the blockchain ledger forever.
Once minted, NFTs become tradable digital assets, with ownership and transaction history secured by advanced encryption and automated verification.
Here's a simplified explanation of how the NFTs are created:
While NFTs and cryptocurrencies are both digital assets, they serve different purposes and have distinct characteristics listed in a table below:
| Aspect | Cryptocurrency | NFTs |
|---|---|---|
| Purpose | Used as a medium of exchange, store of value, or unit of account. Can be used for transactions, investments, remittances, and other financial activities. | Used to represent ownership or proof of authenticity of unique digital assets. Often associated with digital art, collectibles, gaming items, virtual real estate, and other forms of digital content. |
| Fungability | Fungible. Each unit of currency is interchangeable with another unit of the same value. For example, one Bitcoin is equal in value to another Bitcoin. | Non-fungible. Each token represents a unique and indivisible asset, such as a piece of artwork, a collectible item, or virtual real estate. Cannot be exchanged on a one-to-one basis with other tokens of the same type. |
| Technology | Built on blockchain technology. Typically use standards like Bitcoin's blockchain or Ethereum's ERC-20 standard. | Built on blockchain technology. Often utilize standards like Ethereum's ERC-721 or ERC-1155, specifically designed to support Non-Fungible Tokens. |
| Market & dynamics | Characterized by high liquidity, price volatility, and speculative trading. Prices can fluctuate rapidly based on market demand, investor sentiment, regulatory developments, and other factors. | A relatively new, but rapidly growing market, especially in the art and gaming sectors. Prices can be volatile, driven by factors such as uniqueness, scarcity, and perceived value of underlying digital assets. |
In short, ERC-20, ERC-1155, and ERC-721 are different standards (sets of rules) for creating digital tokens on the Ethereum blockchain. Here is a brief breakdown of the terms mentioned previously in the article:
It is a set of rules and guidelines that allows tokens to be exchanged one-to-one with other tokens of the same type.
NFTs created on the ERC-20 are commonly used for creating cryptocurrencies and utility tokens, like those used for ICOs (Initial Coin Offerings) or as rewards in decentralized applications (DApps).
It is a more advanced standard compared to ERC-20. It allows developers to create both fungible and non-fungible tokens within the same contract.
This means that a single contract is able to manage multiple types of tokens, which can be more efficient and cost-effective.
It is specifically designed for creating NFTs on the Ethereum blockchain. NFTs are unique digital assets that cannot be exchanged on a one-to-one basis with other tokens.
They are used to represent ownership or proof of authenticity of unique items, such as digital art, collectibles, and virtual real estate.
In the context of "ERC" (Ethereum Request for Comment) standards, the term "comment" refers to a formal proposal or suggestion made by developers, stakeholders, or the community regarding improvements, changes, or new features for the Ethereum blockchain.
In simple terms:
The "comment" represents a contribution to the ongoing development and improvement of the Ethereum ecosystem
It aims to address challenges, introduce new features, or expand its capabilities.
The goal of a “comment” is to foster discussion and consensus among developers and stakeholders.
All to enhance the functionality, security, and usability of the Ethereum network.
When a proposal or suggestion gains traction and consensus among the community.
It may be formalized into an Ethereum Improvement Proposal (EIP) and assigned a specific number.
The most widely adopted proposals have become recognized as standards, such as ERC-20 or ERC-721.
There is no one simple answer to such a question.
People tend to buy things for a combination of financial, cultural, social, and emotional reasons, reflecting their diverse motivations and interests. However, it would be fair to say that:
Such an approach is quite common and logical. After all, NFTs with limited editions, or significant cultural or historical significance, attract investors looking to capitalize on potential appreciation in value.
Buying Non-Fungible Tokens can be a way for individuals to support their favorite artists and creators directly. It also can be treated as an investment.
NFTs often come with royalties, allowing creators to earn a percentage of the resale price each time their NFT is sold in the secondary market, further incentivizing support for artists.
Non-Fungible Tokens are also similar to traditional art or collectibles; therefore, many people buy NFTs to build collections of digital items.
Collectors often derive satisfaction from owning rare or unique digital assets and may display them in virtual galleries or share them with others in online communities.
But that's not all.
NFTs also allow individuals to establish ownership rights and establish a sense of identity within virtual worlds and online communities.
For example, owning virtual real estate or unique digital avatars through NFTs can enhance one's presence and status in virtual environments such as metaverses and online gaming platforms.
Like any emerging market, speculation, and fear of missing out (FOMO) can also drive demand for NFTs.
Some individuals may buy NFTs based on hype, celebrity endorsements, or perceived scarcity without necessarily understanding the underlying value or utility of the assets.
This speculative behavior can contribute to price volatility in the NFT market.
The Non-Fungible Tokens are not yet widely available online good.
Therefore, they need their own marketplaces where investors can buy, sell, and trade NFTs.
These places also often allow creators to mint Non-Fungible Tokens, as well as for collectors and investors to browse and purchase digital items that interest them.
Inside the NFT marketplace, sellers can set their prices, and buyers can make offers or bid on items through auctions - similar to the Amazon or eBay system.
Marketplace users often need to also connect their cryptocurrency digital wallet, such as MetaMask or Trust Wallet, to be able to buy, sell, or transfer NFTs.
These wallets store the user's digital assets and provide access to the blockchain networks where Non-Fungible Tokens are created and traded.
Many NFT marketplaces offer royalty mechanisms that allow creators to earn a percentage of the resell.
This incentivizes creators to continue producing high-quality content and enables them to benefit from the increasing value of their work over time.
To top that off, such marketplaces often feature curated collections, editorial content, and discovery tools to help users find new and interesting NFTs.
They may also offer social features such as user profiles, following other users, and commenting on listings.
Unlike traditional art, which can be replicated, NFT digital art blockchain registration makes unauthorized duplication difficult.
This gives Non-Fungible Tokens scarcity, authenticity, and provenance. It also prevents art forgery and secures copyrights.
Let's analyze the NFT artwork creation process:
Everything starts with digital artwork creation via digital tools such as graphic design software, 3D modeling programs, or digital painting applications.
Once a digital file of the artwork is created, the artist tokenizes it as an NFT on a chosen blockchain network. This involves minting a unique token that represents ownership of the digital artwork.
After minting, the artist can list their works for sale on an NFT marketplace or platform of choice.
Owners can then set the price, edition size (if applicable), and other parameters for the sale of the artwork, and potential investors or buyers can browse NFT collections.
The rest is very natural and simple.
Just like in the real world, the new owner of NFT can display it in various ways, such as in virtual galleries, on websites, or in digital art collections.
They can also choose to resell or trade the NFT on the secondary market, potentially earning royalties if the platform supports them.
Whenever someone purchases the NFTs, they acquire and verify ownership of the token.
The transaction is recorded on the blockchain, providing a transparent and immutable record of ownership i.e. through digital signature.
Blockchain technology, as a part of Web 3.0, has without doubt already changed the digital world.
Non-Fungible Tokens have already a wide range of real-life uses and examples across various industries.
This technology has become increasingly popular in the art world, enabling artists to tokenize and sell their digital artwork as unique assets.
Platforms like SuperRare, Rarible, and Foundation allow artists to mint, list, and sell their artwork, securing a new avenue for monetization and ownership rights.
Fashion brands and luxury goods companies are perfectly aware of this phenomenon as well.
Brands like Gucci, Nike, and Louis Vuitton have already explored NFTs to engage with their audience.
The same goes for the music industry. Artists and content creators can use platforms like Audius and Catalog to tokenize their music, providing fans with ownership rights and potential royalties.
It might surprise you, but NFTs are also used to represent ownership of virtual real estate in decentralized virtual worlds and metaverses.
Platforms like Decentraland, The Sandbox, and Cryptovoxels allow users to buy, sell, and trade virtual land parcels as NFTs, enabling virtual property ownership and development.
Great financial institutions like i.e. HSBC have already recognized NFT’s potential.
In gaming and esports industries, Non-Fungible Tokens often represent in-game assets, skins, characters, and virtual goods.
Games like Axie Infinity, Gods Unchained, and Sorare use NFTs to create unique and tradable in-game items, fostering player ownership and economies.
As you can see, the possibilities are endless.
There are several popular NFT exchange sites and marketplaces where users can buy, sell, and trade Non-Fungible Tokens. Here are some examples:
Non-Fungible Tokens offer several potential benefits in the field of education. For example, they can be used to tokenize and authenticate educational credentials, certificates, and diplomas.
By issuing educational records as NFTs, institutions can provide students with verifiable proof of their achievements and qualifications, enhancing trust and credibility.
With the ongoing development of virtual reality goggles, NFTs can be used to represent ownership of virtual assets and experiences in virtual learning environments and metaverses.
Institutions can create NFT-based virtual classrooms, campuses, and interactive learning experiences where students can explore, collaborate, and learn in immersive digital environments.
By using blockchain technology, NFTs can create a tamper-proof and decentralized record of student learning achievements and competencies.
This allows institutions to create transparent and immutable records of student progress, which can facilitate lifelong learning and career advancement.
Overall, NFTs have the potential to revolutionize education by providing new opportunities for credentialing, engagement, creativity, and collaboration.
As technology continues to evolve, educators and institutions can explore innovative ways to leverage NFTs to enhance teaching and learning outcomes.
Sounds interesting? You can read more about this in our article about NFT in education.
NFTs (Non-Fungible Tokens) have the potential to revolutionize various aspects of science and medicine. Here are some real-life proofs of concept in those fields:
The concept of Non-Fungible Tokens has its roots in the broader development of blockchain technology. Here's a brief history of NFTs:
The short answer is yes.
However, safety on Non-Fungible Tokens depends on secure smart contracts, vigilance of users, and clear ownership rights.
Environmental concerns also urge users to consider their impact. To mitigate risks and capitalize on opportunities, users must stay informed.
NFTs could potentially be used for money laundering due to their anonymity and easy cross-border trading.
Regulators and law enforcement agencies are scrutinizing the market and considering implementing KYC (Know Your Customer) and AML (Anti Money Laundering) regulations for NFT platforms to mitigate the risk.
That is why, all participants must comply with regulatory requirements to uphold the integrity of the market and prevent it from being exploited by criminals.
NFT scams pose a significant risk to participants in the burgeoning NFT market. These scams can take various forms, including:
To mitigate the risk of falling victim to NFT scams, participants should exercise caution, conduct thorough research on projects and creators, and remain skeptical of offers that seem too good to be true.
Fortunately, utilizing reputable marketplaces with robust security measures and being wary of unsolicited communications can help protect against NFT scams.
Regulatory authorities are also increasingly monitoring the NFT space to combat fraudulent activities and protect investors.
The future of Non-Fungible Tokens, with potential to transform various industries, including education.
NFTs are poised to revolutionize how we create, distribute, and consume digital content, offering unique opportunities for creators, collectors, and educators alike.
By tokenizing certificates, diplomas, and credentials as NFTs, educational institutions can enhance the authenticity, security, and portability of academic records.
This can streamline the verification process for employers and academic institutions while empowering learners to maintain ownership of their achievements. The same goes for any other industry.
NFTs foster collaboration and community-building, gamify learning experiences, and enhance access to cultural knowledge. Are you ready to join the school.game revolution?
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