WHAT ARE NFTS?
- NFT tokens or non-fungible tokens are a solution created to allow us to represent objects with unique, unrepeatable and indivisible qualities within a blockchain.
- Non-fungible tokens or NFTs are one of the solutions that can be created on blockchain technology.
- Non-Fungible Token (NFT Token), uniquely representing the world
- A non-fungible token is a cryptographic token that has the ability to be a unique and unrepeatable token. One that cannot be divided but that can be used to represent objects in the real or digital world along with their own characteristics, as well as the property of it, while maintaining all this within a representation in a blockchain through a smart contract.
This fairly simple concept gives us a clear idea that the NFTs, unlike the tokens that we already know (also called fungible tokens), serve to represent unique objects that are not divisible from their properties, without meaning the destruction of that object, be it real or digital.
A good example of an NFT token would be a collectible. A digital card of a famous sports figure, with a limited stock and, with unique digital markings, is a perfect example of a digital NFT token. However, the same happens if, for example, the card was real and we take its properties to the digital world using a blockchain. In this case, the physical card has a digital representation, but said representation would only serve to control the possession of the physical card, allowing us at all times to track its authenticity, who has had the card on previous occasions, and verify that it is indeed the card we want.
WHY DO NFTS WORK WITHIN A BLOCKCHAIN?
The operation of the NFTs or non-fungible tokens depends on smart contracts or smart contracts. The job of these “programs” within the blockchain is to allow users to create this type of special tokens to represent with them what they want. Virtually anything can be represented digitally, and blockchain is perfect for it.
Let us remember that a smart contract is a small programming within the blockchain, which allows us to tell the network to store the information that we indicate in a transaction. In this way we can access or interact with the information when we need it. All this without forgetting its main properties, that is, in an immutable and transparent way.
In this case, the programmer of a smart contract for an NFT token can create a program with the desired capabilities, having enormous creative freedom. Thus, practically anything can also be stored within an NFT token, if we have the smart contracts designed for this purpose.
Of course, all this is possible thanks to blockchain and smart contracts, leaving us with another question: What blockchain platforms support the creation of NFT? When did the NFTs begin to develop?
ORIGIN AND DEVELOPMENT OF NFTS
The above questions quickly take us on a historical journey and thus answer the question When was the first NFT developed? Contrary to what many think, the world of NFTs did not start in Ethereum, but in Bitcoin.
In the years 2012 and 2013, Bitcoin began to develop the well-known Colored Coins, these were a type of tokens that allowed developers to use the Bitcoin network and coins, to represent other assets, tokens or unique objects with them. The idea behind the Colored Coins was started by Yoni Assia, known for being the founder of eToro, and who submitted a paper explaining his idea. As a result of this work, a series of projects were born such as Bisq, OmniLayer (where the first version of Tether USDT is executed), RSK or CounterParty. This then brings us to the first NFT in history, Rare Pepe, which is still running and accumulating more and more value within the Bitcoin and CounterParty network.
However, Bitcoin Script (Bitcoin’s programming language) is not designed for such tasks, making it extremely complex to design highly interactive NFT platforms. That is why Ethereum has exploited its ability to perform more advanced smart contracts, being able to design much more complex NFTs. The latter is what has made Ethereum the main NFT platform in the crypto world, a trend that will surely continue to be driven by its powerful tools and the ERC-721 and ERC-1155 standards, which allow the creation of NFT tokens in a very simple and following a shared standard highly integrable with other services.
However, Bitcoin and Ethereum are not the only platforms with the ability to create NFTs. Other blockchains such as TRON, EOS, Tezos, Solana, among others also have the ability to work with NFT, all thanks to its advanced smart contract properties.
HOW DOES AN NFT TOKEN WORK?
The operation of NFT tokens can vary depending on the blockchain platform where they are executed. That is, each blockchain platform has a series of capabilities that make NFTs able to act in one way or another. Thus, for example, the NFTs in Ethereum may have slight differences in operation (internally) if we compare it, for example, with those of TRON or EOS.
However, these differences are more than anything small, adjustments that are made so that the operation of smart contracts adapt to the blockchain infrastructure where they are executed (such as the programming language used, the way in which access is handled and the limits and resources that can be used within the network). Of the rest, the operation of the NFTs follows certain parameters that we can call standard and that generally follow the structure dictated by Ethereum with its ERC-721 and the most recent ERC-1155 standards.
With the creation of ERC-721 and ERC-1155, Ethereum managed to create a couple of tools that greatly facilitate the creation of NFT platforms within Ethereum. To do this, it provided both standard smart contracts with a series of functions and capabilities that all NFTs may need for their control and development. Thus, for example, the ERC-721 and ERC-1155 allow to create, transfer, modify and even destroy NFTs, if necessary.
PROS AND CONS OF NFTS
Now, NFTs have their pros and cons like any technology, and in this section the following can be highlighted:
- They allow to represent in a unique and unrepeatable way digital and real objects within the blockchain. So we can use this technology to manage these objects safely at all times. Do you want to tokenize your house or car using an NFT? You can do it, at this point your imagination is the limit.
- The development possibilities of NFTs are practically endless, anything that you can represent digitally can become an NFT. For example: domain names (those used to identify web pages) can be represented as an NFT within a DNS on the blockchain. In fact, this is exactly what happens with the Namecoin project and the Ethereum Name Service.
- The creation of NFT can be adapted to any blockchain, and it can be implemented in such a way that it is very secure. An example is Bitcoin, which with its limited programming capacity is capable of representing NFTs, but keeping the security risks for such assets to a minimum, it manages to represent NFTs.
- The existence of standards makes their creation, implementation and development easier.
- Possibilities for cross-chain interoperability with projects such as Polkadot or Cosmos.
- While there are standards for developing NFTs, they are not foolproof, nor complete in terms of functionality. This is the main reason why, for example, Ethereum’s ERC-721 token (the most used for NFT in Ethereum) seeks to be replaced by the ERC-1155 token, which is much more secure and has new features.
- NFTs are managed by complex smart contracts, which makes their operations complex and heavy (in terms of information). These two things that increase the value of the commissions that must be paid to carry out transactions. Simply put, running NFT can be expensive, especially if the network is congested and commissions skyrocket.
- Like DeFi, NFT platforms are more susceptible to hacking, since everything is handled by smart contracts and additional interfaces to control them. This entire layer of programming adds attack vectors that can be exploited by hackers for malicious gain.
USES OF NFTS
The possible uses of NFTs are practically endless. Today, many NFTs are used to create games or digital collectibles. This due to their rarity and uniqueness they have a very high value for their owners.
In fact, the field of NFTs within the gaming world has started to attract a lot of attention in this industry. For example, an RPG (Role Play Game) game may use NFT tokens to represent the objects within the game. At that point, some of these items can be very, very rare in the game, which would make them very valuable to players. Usually these games include a market to exchange these objects. So; If you can unite an object with great value, a market and create a supply / demand dynamic, you can create an economy within the game. This can generate large profits for the gaming company, even if the game is free-to-play (F2P).
For example, games like Minecraft, EVE Online, DOTA2 or World of Warcraft have quite expensive items to their credit (speaking in real money terms). So this is a way to further monetize these games. If additionally, an element of NFT and interoperability is added, the possibilities at this point are practically endless.
Another use that we already highlighted are collectibles. Things like stickers of your favorite team, players, curious collectibles, paintings, and others, can also be represented by an NFT. In this way, they can be exchanged or sold in markets for this type of transaction. Digital identity, which is another use that we already talked about at the beginning, is also possible to be represented in an NFT.
In Expanse there are very good project ideas with NFTs, from team projects to tokens that will be used for these markets. There is a lot to talk about NFT’s but we wanted to add this guide to make learning easier for you. We hope it has been useful and stay tuned for news about our projects.
EXCHANGE PLATFORMS FOR NON-FUNGIBLE TOKENS
Today, NFTs have become one of the fastest growing markets, behind DeFi. The reason? Many applications and users have begun to exploit its possibilities. This has created ample dynamism and liquidity in these markets, leading to an explosion of development and trading with NFTs.
We can clearly see this on exchange platforms (or exchanges for NFT) such as OpenSea and Rarible. The explosion of collectibles and all kinds of NFTs available on both platforms is soaring, and this is only the beginning.
In fact, the capitalization of the NFT markets has reached more than 2 billion dollars (February 2021), and the projects that occupy the first three places are FLOW, Enjin and Decentraland. The first project (FLOW) uses its own blockchain for its operation. Meanwhile, the last two projects make life in Ethereum, like most projects of this type.
All this thanks to the role that exchanges such as those already mentioned have had so that people can buy and sell rare NFTs, from anywhere in the world. Which undoubtedly gives us a clear idea of the enormous potential of this technology in the not too distant future.
NFT TOKEN PROJECT DIRECTORIES
However, if you are interested in knowing what NFT projects exist and how you can get to them, there are some interesting directories for this.
First of all, the Coinmarketcap and CoinGecko websites have a list of very interesting NFT projects that you can check out. In addition to this, you can go to NonFungible and DeFi Prime, to review their respective lists of NFT projects.
It is clear at this point that an NFT token or non-fungible tokens are a promising option and technology within the blockchain world. Its applicability to the world around us is immense. With applications for identity and digital security, our homes and our daily lives. Going through the manufacturing industries, banks, medical and pharmaceutical industries, even in military security environments. It is clear that an NFT token has a wide range of uses that can be investigated and developed.
In fact, what we see now is just the tip of the iceberg in terms of the development of these technologies. Therefore, we will surely see more developments regarding it in the coming years. These developments will surely surprise us with their enormous versatility and possibilities.