The Tokenizer has created a series of articles introducing NFTs from a technical point of view. This article, which is the first one out of 6, provides an initial look into the world of NFTs and explains the basics.
By Qin Wang (Swinburne University of Technology & CSIRO Data61 ) and Rujia Li (Southern University of Science and Technology & University of Birmingham)
NFTs hit the world
The Non-Fungible Token (NFT) market has been expanding rapidly within the past couple of years. The 24-hour trading volume on average in the NFT market is 60.1 billion USD [Coingecko, 23 November, 2021], while the 24-hour trading volume in the entire cryptocurrency market is 162 billion USD. The liquidity of NFT related solutions has accounted for 1.3% of the entire cryptocurrency market in the short period of 6 months from May 2021 to October 2021, and early investors obtain thousandfold returns by selling unique digital collectibles. There was an increase in the market of around 1600% from Q1 2021 till the beginning of Q2 2021 alone and the skyrocketing development draws huge attention worldwide. By September 2021, the total amount spent on NFTs reached 6 billion USD.
What is an NFT?
A Non-Fungible Token (NFT) is a type of cryptocurrency derived from the smart contracts of Ethereum. NFT was first proposed in Ethereum token standards, ERC-721 (point out every tradable token is unique). NFT differs from classical cryptocurrencies such as Bitcoin in their intrinsic features. Bitcoin is a fungible coin, in which all the coins are equivalent and indistinguishable. In contrast, NFT is unique which cannot be exchanged like-for-like (Equiv. non-fungible), making it suitable for identifying something or someone in a unique way. With NFTs, all market properties can be traded freely with customized values according to their ages, rarity, liquidity, etc.
How to use an NFT
By using NFTs, a creator can easily prove the existence and ownership of their assets in the form of videos, images, artworks, event tickets, etc. Furthermore, the creator can earn royalties each time their NFTs are successfully traded in any NFT market or peer-to-peer. Full-history traceability (provenance), deep liquidity, and convenient interoperability enable NFTs to become promising intellectual property (IP)-protection solutions. It well secures selling prices of these IP products (e.g. in the form of music, figures, text) that may have seemed unthinkable for non-fungible virtual assets.
People become interested in NFTs
NFTs have become very popular among various demographics, and people participate in NFT related games or trades with enthusiasm. In the early year (around 2017), the pioneer bought NFT-based products through ICO. They send the ETH coin to a specific contract and obtain the corresponding products. After several years of development, users can buy NFTs directly through Opeasea, an NFT centric platform containing lots of collectibles. Here, we emphasize several top-ranked projects. CryptoPunks, one of the first issuer of NFTs on Ethereum, has created more than 10,000 collectible punks (6039 males and 3840 females). CryptoKitties officially put NFTs on notice and hit the market in 2017 with the gamification of the breeding mechanics. Participants fiercely competed at high prices to auction the rare cats, and the highest price reached more than 999 ETH (equiv. 3M USD).
Another outstanding instance is NBA Top Shot, which is an NFT trading platform used to buy and sell short digital videos of NBA moments. Thousands of NBA fans from around the world have collected over 7.6 million top shot moments, building the roster of rookies, vets, and rising star players. Other projects have also become great successes, including Picasso Punks, Hashmasks, 3DPunks, unofficial punks, Polkamon, Chubbies, Bullrun Babes, Aavegotchi, CryptoCats, Moon Cats Rescue, NFT box, etc.
NFT is forming an ecosystem
There is no doubt that there is a hype cycle surrounding NFTs where most products for a period of time can be sold at high prices, some even at hundreds or thousands of ETHs. But this reflects a truth where people are investing a huge amount of real money in the NFT market, which will directly promote the prosperity of NFT-related products. Besides games and collectibles, NFTs also have a rapid development in the areas of art, ticketing events, IoT, and finance. In the meanwhile, surrounding markets play important roles as well to provide instant information and secure environments like statistic websites (e.g. NonFungible, DappRadar, NFT bank, DefiPulse, Coingecko) and trading marketplaces (cryptoslam, Opensea, SuperRare, Nifty Gateway, Rarible). These different products make up the NFT ecosystem.
Qin Wang is a researcher focusing on blockchain technology, covering sub-fields of consensus protocols, security, and blockchain economies. More information can be found at https://qinwang.tech/.
Rujia Li is a blockchain researcher with interests on privacy-preserving smart contracts and FinTech. More information can be found at https://rujia.uk/.
Read More: Are NFTs secure?