Author: Mena Theodorou
A craze that seems to have just boomed out of nowhere, NFTs are currently taking over the internet. From cat memes, NBA collectables, to animations from Daft Punk or Grimes, and even tweets from Elon Musk and Jack Dorsey – people are investing millions of dollars into getting their hands on some of the rarest NFTs on the market. But what’s the deal? Is this just a passing fad? Or are NFTs here to stay and change the future of crypto assets and ownership as we know it?
What’s an NFT?
Let’s start with the basics. A non-fungible token (NFT) refers to scarce, one-of-a-kind digital items that are traded on the Ethereum blockchain. Much like traditional crypto assets, NFTs are stored in digital wallets, which allow them to remain secure. These tokens are a type of crypto assets, but instead of being treated like currency, they’re assigned to assets like digital works of art, video clips, and even music.
In fact, American rock band The Kings of Leon released their new album titled ‘When You See Yourself in the form of an NFT – becoming the first band to ever do so. But as we can all still copy, paste and share digital art, what’s the point?
As NFTs operate on a blockchain, anyone can see the details of any NFT transactions, meaning you can trace the original artwork back to its owner. There’s no faking ownership of these assets, which is why they’ve become so valuable.
The value of NFTs are completely subjective and therefore fluctuate. The valuation of the NFT market is skyrocketing and has already breached the $1bn market. Some experts predict that the market will continue to grow at an accelerated rate, as more interest and demand from individuals and brands build for NFTs.
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What are some non-typical applications of NFTs?
Beyond the typical use cases and applications of NFTs, which are predominantly focused on the modern digital art world, developers around the world are finding new ways to demonstrate their value. While gaming companies like Ubisoft are experimenting with NFTs to create new virtual blockchain-first worlds, other companies are using NFTs to connect to domains to create an immutable history of their journey for tracking purposes.
Luxury fashion brands such as Louis Vuitton are testing NFTs to help solve their counterfeiting problems, by linking real-world objects to NFTs to verify their authenticity. American fast-food chain Taco Bell recently debuted its NFTacoBell collection, which consists of five taco-inspired GIF illustrations. Each GIF features five copies, for a total of 25 NFTs, and they sold out within 30 minutes.
Data companies are also playing around with the idea of using NFTs as a representation of specific data. As the NFT market grows, developers are looking to make improvements on the ERC-721 token standard and offer consumers more flexibility. Most NFTs are built using the ERC-721 token standard, an Ethereum-compatible identifier that was created by the developers of CryptoKitties.
For instance, ERC-1155 is a standard that allows for a single smart contract to manage multiple token types, including fungible tokens, non-fungible tokens and tokens that fall in between the two classifications.
What’s the future of NFTs?
NFTs were created in 2012, the first being Colored Coins. Coloured Coins are simply a crypto currency with added metadata that can be used to encode other assets on the blockchain, for example shares of a company, subscriptions and digital collectables. However, despite being nearly a decade old, the NFT space is only now starting to gain traction.
As blockchain technology reaches new heights in terms of adoption, it’s expected that NFTs will soon be traded and auctioned just like any other traditional asset or art masterpiece. NFTs have the potential to vastly alter our relationship with the digital world by introducing object-based verifiable digital scarcity.
However, there are a number of flaws that surround NFTs that still need to be urgently addressed and ironed out. One of the major issues is NFT transactions are unsustainable from an environmental perspective.
As NFTs exist on the energy costly Ethereum blockchain, they are created (or minted) based on a process known as proof-of-work, which requires the use of large networks of processing machines that emit CO2. Ethereum’s developers are planning a shift to the less energy-intensive proof-of-stake model of validating transactions, yet the timeline for the switch remains unclear. With climate protection another reflection of the era’s zeitgeist, some artists have decided not to offer their work as NFTs. Could this be an ongoing trend? Or will it pass within a blink of an eye? Only time will tell.
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