Chances are, you’ve likely seen the images of monkeys or the videos of sports highlights selling for millions of dollars. These are Non Fungible Tokens, more commonly referred to as NFTs, and they have exploded onto the scene in recent years. They are considered to be one of the most exciting applications of blockchain technology.
The truth is NFTs are much more than pictures of monkeys, they represent digital ownership of assets.
In this article, we will take a deep dive into all the info someone needs to get started with NFTS. We will cover topics such as:
- What are NFTS?
- How NFTs work
- Discuss several NFT sub-industries
What is a Non-Fungible Token (NFT)?
Non-fungible tokens (NFTs) are an application of blockchain technology that makes each token totally unique, and therefore verifies its digital scarcity. This opens up a whole new world of possibilities for the use of this blockchain application. Any real-world assets that are classified as non-fungible can be digitally represented by non-fungible tokens and encoded with unique details using a smart contract.
In order to better understand what NFTs are, it is important to first understand what fungible and non-fungible mean. Fungible is an economic term that describes a good or commodity capable of being exchanged for another good or commodity. Fungible describes something that is interchangeable with something else, irrespective of its value.
Non-fungible is the opposite, meaning anything that it is unique in and of itself, and therefore not exchangeable.
For instance, the USD value fluctuates, but the value of a dollar note relative to another dollar note remains the same. There is no need to make a distinction between one $20 bill and another $20 bill, they are interchangeable. This means that the currency is fungible.
Even a commodity as rare as gold itself is fungible. Due to its scarcity, gold is one of the most valuable real-world assets, and the price of gold is constantly changing. However, gold can always be exchanged for an equivalent amount of gold. One troy ounce of gold is worth the exact same amount as another troy ounce of gold. This means that gold is classified as fungible as well.
The same is true with many cryptocurrencies as most are fungible tokens. The fungibility of cryptocurrencies is based on the fact that the coins are interchangeable with each other. For these fungible tokens, each token is interchangeable and therefore can be exchanged for another.
For instance, one Bitcoin is the same as another Bitcoin. There is no need to distinguish one Bitcoin from another, and therefore they are totally interchangeable with each other. One Bitcoin can always be exchanged for another Bitcoin, as each of the coins is worth the same. This means that a cryptocurrency like Bitcoin is fungible and that Bitcoin is one of the first examples of fungible tokens. Needless to say, Bitcoin is not an NFT, nor is ETH an NFT. However, the caveat to the last sentence is that one of these platforms can create NFTs, so there are NFT applications built into the platform (e.g., Ethereum Name Service), but it is a different token type than ERC20.
How to buy NFTs
It is actually quite simple to buy NFTs in Australia. Simply for the steps lai out below
- Sign up to a cryptocurrency exchange to buy ETH
- Create a MetaMask wallet
- Send ETH to your MetaMask wallet
- Attach your MetaMask wallet to Opensea.io
- Search for the NFT you’d like to buy
- Purchase an NFT or bid for an NFT
- Complete Transaction
For a complete breakdown of each of these steps, read our ‘how to buy NFTs in Australia‘ guide’
Best exchange to buy NFTs
Crypto.com and Binance are two of the best exchanges in Australia that offer NFTs. They both have NFT marketplaces where users can purchase and bid of a diverse range of NFTS.
Types of assets that can become an NFT
Essentially any kind of unique asset, both in the real world and the virtual world, can be represented by NFTs. While most people immediately think of a medium such fine art, like a Picasso painting as one of the obvious NFT use cases, NFTs could be used to digitally represent so much more. All physical collectibles, whether they are trading cards, baseball/basketball cards, rare coins, mint condition comic books, or even race cars like a Formula 1 car can be represented by NFTs. However, these types of tokens have the potential to be used for a lot more in this space.
Not only can NFTs be used to digitally represent a real-world asset, but they can also be used to represent completely digital assets themselves. There is a huge potential for NFT usage outside of what exists only in the real world. This opens the door for the trading of any unique asset in the virtual world as well. Digital goods such as crypto-collectibles, digital art, and virtual land in video games or within a blockchain-based app all use NFT technology. Even domain names for a website can be represented by NFTs for their nonfungible “.com” or “.io” top-level domain.
The industry is filled with all types of uses for NFTs. They allow you to support writers and artists, verify ticket authenticity for a sporting event, demonstrate digital ownership authenticity for memorabilia, as well as many other uses. User data generated by 0xcert has shown that there are over 30 different uses for NFTs. NFTs can be used for proving authenticity in the collectible world just as easily as they can be used to show off a digital art collection. Investors will continue to fund companies in the NFT space that ideate unique uses.
Sales of NFTs, as well as the entire industry, are expected to be driven further as NFT projects and teams focus on future use cases of the technology. NFT tech will also be further bolstered as some of the industries propping it up grow as well. For example, the video game industry will continue to grow as different digital versions of older games are released. People are going to go after the newer versions, and when they do, players will need access to more options. The more video games that come out, the higher the total number of in-game options that exist.
Ethereum: NFT Standards of Today
Ethereum has a wide variety of uses. Not only did it allow the ability to create smart contracts for crypto assets such as ETH, but it also unlocked the ability to create different token standards that allow NFTs to function. In addition to the original standard of ERC20, Ethereum also has two additional standards that are commonly used for NFTs, the ERC721 and the ERC1155 standards. Both of these Ethereum-based standards function on the Ethereum network like ERC20, however, they instead allow unique tokens to be issued.
While both ERC721 and ERC 1155 are designed for NFTs, ERC1155 focuses more on improving efficiency. One improvement is that the entire smart contract state does not need to be modified for the ERC1155 (compared to the ERC721 which does require smart contract state modification).
Another potential reason that developers like working with the ERC1155 standard is that it is a subset of the ERC721, meaning that an ERC721 token can be created using the ERC1155 standard. Part of the difficulty in understanding NFTs is understanding the standards, the other difficult part is understanding all of the different use cases. However, once you once understand the main part of the NFT story, that it can be a digital representation of any one-off good, then the rest of the information you uncover about NFTs will be a little easier to get. It’s all about unique ownership… unique digital ownership that is.
Crypto Kitties: Brief Summary
CryptoKitties is a virtual trading card game that runs on the Ethereum network. The focus of the game is to raise and breed virtual cats which are unique and represented by non-fungible tokens. CryptoKitties feature a set of 12 attributes (“cattributes”) such as fur pattern, shape and eye colour, all of which give them a distinct genome. Ownership is managed through smart contracts. Users can buy, sell and trade their kitties for ETH on the network and through secondary markets. Some of the original cats have sold in auctions for over one hundred ETH.
What’s most integral to CryptoKitties medium to long term adoption is the use of Ethereum’s ERC 721 standard. This enables for the creation of non-fungible tokens that have fully unique characteristics (including all fully unique game items). It is a great example of blockchain being used for the creation of unique digital items. The game was launched in October 2017. It is one of the most widely recognized uses of the Ethereum blockchain in a gaming context. Its immediate popularity gave CryptoKitties a surge in use that created unexpected congestion and slow-downs on Ethereum’s network.
In November 2018 the team behind CryptoKitties was moved to Dapper Labs to continue developing the project. It received more than $15 million of venture funding from investors like Union Square Ventures and Andreessen Horowitz. Still today CryptoKitties continues to enjoy its status as one of the top NFTs of all time.
Compare: Fungible & Non-Fungible Tokens
In economics, fungibility is considered to be one of the primary characteristics of a good, commodity, or asset. Essentially it means that every unit is interchangeable and indistinguishable from the other. All the major cryptos such as Bitcoin and Ethereum are all fungible in that one unit has the same and equal value across the entire network.
Ethereum is still the main blockchain network for the creation and distribution of non-fungible tokens. There are also a number of other major blockchains and platforms that don’t use the Ethereum blockchain currently being used for non-fungible token creation such as NEO and Hive.
Another one of the players in the space is WAX blockchain (Worldwide Asset eXchange). More than just its own cryptocurrency, it is also specifically designed for digital trading and sales of NFTs. Digital collectibles and ownership of these assets is what drives the platform, and it has received a lot of positive responses from NFT enthusiasts looking for information about where to trade their NFTs.
Still one of the best-known examples of non-fungible tokens is the wildly successful Crytpokitties. It influenced the creation of many other non-fungible token-based gaming and rewards programs. Some of the most well known are CryptoPunks, Ethermon, Decentraland, and Splinterlands.
Non-fungible token projects have created an entirely new industry. Major corporations such as Nike and sports leagues like the NFL and MLB are looking to incorporate non-fungible tokens into their products.
How to Create Non-Fungible Tokens
There are a growing variety of ways to create non-fungible tokens. Some of the things to consider when creating non-fungible tokens are the blockchain, purpose, and valuation. Since nonfungible tokens are managed through smart contracts, Ethereum is the main blockchain used for non-fungible tokens. There are others that are also used such as EOS, Tron, and Chainlink. In addition to collectibles, unique, in-game assets and rewards, non-fungible tokens are becoming a way to increase customer engagement and retention.
Minting non-fungible tokens can be done through crypto wallets and blockchain-based apps. Some of the most popular places to create NFTs include Enjin Wallet, Minbase.io, and Mintable.app, all of which enables someone to create and share tokens. These are all easy ways to start the journey into NFT ownership.
The Mintable app is one of the leading apps in the world of making NFTs. The app allows you to browse, manage, and mint digital items using an interface that is easy to work with. The Mintable app allows users to make NFTs in under a minute. Although the app itself does not have a token, Mintable does have token trading contests where they give away free prizes. It is one of the NFT marketplaces where creators, artists, and other types of digital-content owners can sell their unique assets digitally.
Creating Non Fungible Tokens
After submitting some cursory information into the platform such as your email address, you’ll be creating NFTs sooner than you think. While you might not be creating the crypto-collectibles you love (that is… unless you have some advanced graphic design and software engineering background), you won’t be making anything too complicated in the beginning. In fact, some of the aforementioned websites make it very simple to create NFTs without an advanced technical background or an advanced understanding of the ERC721 standard.