Investing in NFTs (Non-Fungible Tokens) - The Complete Guide

 

Non-Fungible Tokens (NFTs) are blockchain-powered assets that enable the tokenization of digital artwork and other rare digital collectibles. A Non-Fungible Token (NFT) is a tradable token linked to the ownership of a scarce asset. It can also be described as “a type of token that creates digital scarcity and can be verified without any centralized organization to authenticate it.”

 

Why Are NFTs Built on Blockchain Technology?

A non-fungible asset uses blockchain technology to establish or transfer ownership without centralized control. Below are key reasons why the NFT industry is built on top of blockchain protocols.

(1) Ensuring Authenticity

Blockchain technology verifies the origin of a digital asset and ensures that it cannot be counterfeited.

(2) Confirming Ownership

Using cryptography, blockchain can reliably confirm that each NFT is unique and cannot be copied, duplicated, or reproduced.

(3) Achieving Easy Transferability

By applying simple transfer protocols, NFTs can be instantly sold and transferred to others through an NFT marketplace.

(4) Achieving Decentralization

Blockchain technology enables the creation and operation of web applications without centralized control. Through the blockchain, NFTs can be authenticated and transferred without the need for any centralized organization to verify the entire process.

 

 

Different Categories of NFTs

Actually, an NFT can be used to tokenize anything of value. Currently, the major categories of assets tokenized through NFTs include:

(1) Digital Art Tokens

(2) Gaming Assets

(3) NFT Collectibles

(4) Financial NFTs

(5) Virtual Real Estate

(6) Social Tokens

(7) Blockchain Domain Names

(8) Physical Goods (luxury) Tokens

 

(1) Digital Art Tokens

Digital art NFT marketplaces are booming right now. There are significant advantages for emerging artists to create NFTs based on their artwork.

• NFTs can help unknown artists gain popularity and generate substantial income without the need for intermediaries.
• NFTs also support automated payments from secondary sales.

Key Projects:

• SuperRare (Digital Art Marketplace)

• Rarible.com (Community-owned NFT marketplace)

• Mintbase.io (Art, Photography, etc.)

• NiftyGateway (Art Marketplace -Owned by Gemini)

• Makersplace.com (Protect and sell Digital Creations)

• KnownOrigin (Collect rare Digital Artwork)

• Foundation (Linking digital artists and cultural collectors)

Programmable Art

Programmable art refers to digital artwork that can dynamically change some of its features over time. By incorporating on-chain data, a programmable art project remains alive and continuously evolves.

• Async Art (Programmable Art)

 

(2) Gaming NFTs

Gaming NFTs are digital tokens that enable the transfer of gaming features through decentralized marketplaces. They prove ownership and scarcity while providing interoperability within the online gaming industry.

Gaming platforms like Steam already offer marketplaces; however, these are centralized, which leads to censorship and extra costs. The key innovation of gaming NFTs is that the entire process of transferring gaming features occurs in a decentralized manner, free from authoritarian control and the fees associated with centralized marketplaces. For example, Steam charges a 5% transaction fee, and some online games add an additional 10% fee. Steam also restricts user wallet balances and limits the price at which a single item can be sold.

Key Projects:

• Polyient (Gaming Rewards)

• MyCryptoHeroes (RPG battle built on top of Ethereum)

• Gods Unchained (Trading Cards)

 

(3) NFT Collectibles

NFT collectibles are digital assets with little to no functionality. Currently, NFT collectibles primarily include sports memorabilia and avatars.

Key Projects:

• NBA Top Shot (NBA-licensed NFT collectibles -Built on the top of Flow blockchain)

• SoRare.com (Football digital cards)

• CryptoKitties (The first-ever NFT project to go live)

• CryptoPunks (The first NFT on Ethereum)

 

(4) Financial NFTs

Financial NFTs directly link NFTs to the broader Decentralized Finance (DeFi) ecosystem. The goal is to leverage the vast liquidity within the DeFi space. With financial NFTs, you can perform various financial transactions, such as receiving a loan by using part of your NFT portfolio as collateral. Other applications, like tokenized insurance contracts, are also emerging.

Key Projects:

• NFTfi (Put your NFT assets up as collateral for a loan, or offer loans)

• NIFTEX (Trading NFTs by fractionalizing them into “shards”)

• Aavegotchi (Enables NFT users to earn money by staking crypto-collectibles)

• Yinsure (Create tokenized insurance contracts)

 

(5) Virtual Real Estate

Virtual retail-estate refers to a blockchain-based digital world where users can own parts of the environment. Digital real estate includes a system for buying, selling, and transferring property rights. In the future, commercial users will be able to create virtual shops where others can explore and order digital or physical products using their VR equipment.

Key Projects:

• Cryptovoxels (Popular virtual world)

• Decentraland (Popular virtual world)

• SomniumSpace (Virtual world optimized for the use of VR headsets)

• The Sandbox (Own, play, and create a virtual world made by players)

 

(6) Social Tokens

Social tokens are digital tokens created by individuals or communities to incentivize specific actions within that community. For example, a social token could be used to launch a competition among web programmers, encouraging the creation of useful software code that would later be shared with the community. Token holders decide the distribution of rewards among the winners through voting.

Key Projects:

• Collab.land

 

(7) Blockchain domain names

A blockchain domain is a domain asset stored on the blockchain. The most notable project is Unstoppable Domains, which offers two unique features:

(1) Blockchain domains replace complex cryptocurrency addresses with simple, human-readable names. This means your clients can send you funds by typing yourname.crypto, allowing you to receive payments instantly.

(2) Blockchain domains enable the creation of censorship-resistant websites. This is possible because blockchain domains are stored in cryptocurrency wallets and are solely controlled by their owners.

Key Projects:

• Unstoppable Domains

• Ethereum Name Service

 

(8) Physical Goods (luxury) Tokens

The market for NFTs representing physical goods is still in a very early stage. However, the future of tokenizing physical collectibles is extremely promising.

Key Projects:

• WiV (NFTs for expensive wine)

• Crypto Stamp (Offering stamps that can be used for postage but at the same time saves digital images within the blockchain)

 

 

OTHER KEY NFT WEBSITES

NFT Data

• Nonfungbile (NFT market data Coingecko/Coinmarketcap)

 

Trading NFTs

• OpenSea (Create and trade NFTs, view market data)

• TokenTrove (Trade NFTs created on other markets)

• Zora.co (Exchange everything NFT)

 

Ethereum -The Dominant NFT Blockchain

NFTs can be built on several blockchain protocols such as Ethereum, Polkadot, EOS, Cardano, Cosmos, and the Flow blockchain. All these networks provide the necessary infrastructure for tokenizing digital assets. For example, several successful NFT projects have been built on the Flow blockchain. Created by the team behind CryptoKitties, Flow was designed for internet-scale protocols, applications, games, and digital assets. https://www.onflow.org/

Nevertheless, as with DeFi applications, Ethereum remains the dominant blockchain network for creating NFTs. Ethereum supports two key standards for NFT creation: ERC-721 and ERC-1155.

(A) ERC721

ERC721 is an Ethereum Solidity smart contract standard and the first for creating non-fungible assets (NFTs). ERC721 provides a mapping that includes:

• unique identifiers that correspond to single digital assets (NFT assets)

• addresses that correspond to owners of these identifiers (NFT owners)

• an independent mechanism for transferring identifiers (via the transferFrommethod)

Link: Create ERC721-compliant contracts via the OpenZeppelin library

(B) ERC1155

Developed by the Enjin team, ERC1155 introduces the idea of semi-fungibility:

• IDs correspond to classes of assets, not single assets

• wallets correspond to owners of these IDs

• that idea is very applicable to the online gaming industry and the music industry where you can have ownership of a series of identical digital assets

• the 'transferFrom' method is used again for transferring ownership, along with the 'balanceOf' method (that calculates the number of identical assets of the same class)

 

□ NFTs (Non-Fungible Tokens) - The Complete Guide

G. Protonotarios for ExpertSignal.com (c)

 

Sources:

• Ethereum 2.0 Guide at TradingCenter.org

• The History of Non-Fungible Tokens (NFTs)

• Quick Overview Of The NFT Ecosystem

• A Beginner’s Guide to Non-Fungible Tokens (NFTs)

• How to create your own unique NFT?

• The Non-Fungible Token Bible: Everything you need to know about NFTs

• There is no Such Thing as Blockchain Art - A report on the current status of the intersection of Blockchain and art (PDF)