NFT is a new step in the world of technology
Non-interchangeable token – one may wonder if this term was chosen because of its ambiguity, which arouses curiosity.
A non-interchangeable token (NFT) is a unique token. All tokens are unique: every Bitcoin, every Ether, or any other listed on Coinmarketrate.com like every banknote that is numbered properly. They are unique, but interchangeable, that is, in this case, non-interchangeability is uniqueness, since each NFT token will be issued to represent a single copy of the work, or the authenticity of the subject.
For example, there was the video “Charlie Bit Me,” a 55-second film posted on YouTube in 2007 by the parents of two children playing, which was sold on May 23, 2021 for $760,999 at an online auction.
But what exactly are we buying at this price?
The user license is sold as a token
From a legal point of view, you should consider the token as a contract to understand that it complies with the user license. That is, the buyer has the right to view the work both privately and publicly, and to use it (that is, to charge those who wish to see it) under certain conditions specified in the license. This right was previously granted to YouTube, but the Davis-Carr family decided to remove the video from the platform and transfer it to the rightholder who offered the highest price, without giving up their intellectual property.
Now, from a technical point of view, the means for this license is a token registered in the general registry, usually in the blockchain. Often this is the Ethereum chain (via the ERC-721 or ERC-1155 “standards”), but other protocols, such as Tezos, also offer the placement of tokens representing the right to use digital works.
In fact, since blockchain tokens have their own personality, any blockchain, starting with Bitcoin, could cope with this task, but with two points worthy of attention: the first is the internal price of the token, which, in the case of Bitcoin, is currently not insignificant.
Well, the second aspect is the technical conditions of the registry. This is the role of ERC standards, which regulate the definition of identifiers of works and their owners, exchange conditions, etc.
Finally, it should be understood that the work itself is usually not placed in a token (to limit the size of the block chain), which includes only a link. Thus, we can imagine the sale of rights to any type of work in the form of tokens, in this case, digital works such as drawings, photographs, music or videos, as well as sports events (the NBA has created a special platform – nbatopshot.com ).
There are also more unexpected forms: virtual playing cards (for example, “cryptopoints”), fashion items and even pornographic content. But the most shocking are social tokens. In fact, it all depends on the user license that will be sold as a token.
This diversity obviously raises the question of limitations: it is the presence of effective demand that will determine what can be sold. From this point of view, the value of tokens is no more outrageous and surprising than the cost of football transfers, or pseudometric tokens such as Bitcoin. However, it should be remembered that government regulations apply to content that can be viewed on the Internet and hosted on servers, as well as to contracts.
So, it remains to be hoped that NFT tokens will not contribute to the emergence of markets for filming crimes, slavery contracts and other abominations to which the human race is subject.
On the other hand, no blockchain restricts reproduction rights: if the ERC standards mentioned above define duplication methods (by providing a field for the number of copies of each series), nothing prevents the owner from placing a new set of copies under a different ID, or in another blockchain. The risk of expanding reproductions beyond what was agreed with physical certificates already existed, so the new method does not change anything.
Energy-intensive system
However, this method adds a level of complexity when considering its own problems. We are thinking, for example, about the energy consumption of blockchains based on Proof of Work. Indeed, the inviolability of data from Ethereum, as from Bitcoin, is based on the computing power that is allocated for mining, that is, say, on solving mathematical problems that cause new data to be entered into the register. These operations consume energy: for Bitcoin, we are talking about gigawatts of continuous power and therefore tens of tons of CO2 per day. Therefore, it is wise to stay away from this approach. For Ethereum, the consumption is certainly less, but not quite insignificant.
Blockchains using alternative methods can also be problematic for the environment: for example, Chia requires hard disk space that should be reserved for this use.
How big is the NFT market?
According to the report published NonFungible.com and L’Atelier BNP Paribas, 74,529 digital wallets bought at least one NFT in 2020, and 31,504 digital wallets sold at least one. In this case, these are “wallets”, not “people”, because a person can have more than one wallet. This year, as of September, more than 94.5 thousand tokens have been sold.
Last year, the total value of NFTs sold was $237 million, which is four times more than in 2019. NFT’s market capitalization last year was more than $319 million (compared to $133.9 million in 2019). At the moment, the market capitalization of NFT is 768.5 billion US dollars.
Digital, and very strange
If NFTs seem very strange to you, it’s because they really are. You can endlessly copy a digital file such as a photo or meme (be careful, they may be copyrighted), and the same goes for the digital images accompanying the NFT (the NFT itself cannot be copied).
At first glance, the idea of paying for tokens belonging to an image or digital object that is located somewhere on the Internet and can be captured in a matter of seconds using a screenshot may seem, to put it mildly, strange.
But, we remind you that non-interchangeable tokens are unique cryptocurrencies.
NFTs allow you to tokenize absolutely any physical assets, not just apartments or works of art. The idea is to increase the liquidity of physical assets that can currently be completely blocked.
- Individual or Collectible NFT
In this category, for example, Crypto Kitties is a game in which you can collect cats. This is the game that filled the Ethereum blockchain in 2017 with its success. Above, you can cross cats with each other to get a unique character. Crypto Heroes is a game where you can collect and win magic items. Decentraland, where you can build houses and get rent. But there are many others related to art, for example, digital art.
- NFTs are related to people management
Little-known to the general public, NFTs related to managing people allow other people to make decisions for them.
Mike Merrill’s first contract appeared in 2008, when there was no cryptocurrency or blockchain. He decided to sell the opportunity to make decisions in his life to shareholders. 150 people have acquired this right.
Today, 600 people are managed in their daily lives by outsiders who have purchased NFT. Decision-making can relate to career choices, love, and much more. Every time a person is fully obliged to obey his shareholders.
These tokens, related to the management of people, allow you to determine the next actions that will be taken by groups of people or a specific person. They are called community tokens. In October 2020, the most famous in this area is Whale. This approach is a bit shocking, and makes you tense up.
- NFT Trading Platforms
The most famous NFT exchange platform is Open Sea, but it is usually overtaken by Rarible, a platform that exploded with DeFi.
On Rarible, you can sell works of art at any price. The platform is fully automated and very easy to use. Unlike Open Sea, from the moment of using the service, it allows you to earn cryptocurrency. In addition, you can also sell your tokens on other market platforms, for example, in exchange for Ether. The more you use the platform, the more money you earn.
- NFT – proof of authenticity
Today, the whole world is facing fraud and counterfeiting. Thanks to such a blockchain as DecimalChain, which rely on the Delegated Proof of Stake (DPoS) consensus, it is possible to solve this problem.
This is a project of Russian developers that provides both an ordinary user and companies with a blockchain platform with a token constructor. DecimalChain enabled online educational institutions to use NFT tokens to confirm the authenticity of diplomas.
- NFT related to finance
NFT tokens related to finance are similar to their counterparts in the traditional world. Financial products that will allow you to create derivative products. These derivatives will allow buyers to invest in areas they often have no control over, with respect to underlying assets. This is the main factor of the major crisis of 2008. We hope that crypto managers will be smart enough not to repeat the mistakes of the traditional market this time.
NFTs in the financial world also allow you to offer smart contract insurance. Currently, they are mainly used for loans in cryptocurrency, for example, on Compound.
- Platforms that allow tokenization
There are platforms that allow you to directly tokenize physical or software assets.
For example, you have Enjin, a platform developed in 2008 by a Singapore-based company that recently became a Microsoft partner. His goal? Allow the sale of items won in video games. They offer a complete ecosystem that allows games to tokenize all their virtual elements. The project is currently being used in the Azure cloud.
In 2020, there was a real market for games such as Minecraft or Fortnite, which together have more than 90 million users.
Conclusion
We are at the very beginning of the NFT path. In the future, it will become common to buy a hundredth part of an apartment to receive part of the rent. Or, for example, you can have your virtual art gallery, the cost of which can grow depending on the artist.
NFTs will provide more liquidity, which is often not enough in everyday life. The main thing is that this technology should be aimed at the service of humanity, and not against it.