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

 

Non-Fungible Tokens 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 that is 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 that authenticates it.”

Why NFTs are built on Blockchain Technology?

A non-fungible asset uses the blockchain to state or to transfer ownership without any centralized control. These are some key points explaining why the NFT industry is built on top of blockchain protocols.

(1) Ensuring Authenticity

Blockchain technology confirms the origins of a digital asset and ensures that it will not be counterfeited.

(2) Confirming Ownership

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

(3) Achieving Easy Transferability

By applying simple transferring protocols, NFTs can be instantly sold and transferred to someone else, via an NFT marketplace.

(4) Achieving Decentralization

Blockchain technology allows the creation and operation of web applications without the need for centralized control. Via the chain, NFTs can be authenticated and transferred without the need for any centralized organization to verify the whole process.

 

 

The Different Categories of NFTs

Actually, an NFT can be used for the tokenization of anything of value. Currently, these are the major categories of assets that are tokenized via NFTs:

(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 at the moment. There are great advantages for young artists to create NFTs based on their artwork.

• NFTs can help unknown artists to become popular and create a significant income without the need for intermediaries

• NFTs can support the automated payment of 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 through time. By incorporating on-chain data, a programmable art project is alive and evolves all the time.

• Async Art (Programmable Art)

 

(2) Gaming NFTs

The gaming NFTs are digital tokens that can transfer gaming features via decentralized marketplaces. They can prove ownership and scarcity, and at the same time provide interoperability to the online gaming industry.

Gaming platforms such as Steam already provide a marketplace, however, this marketplace is centralized and that means censorship and extra costs. The key innovation of gaming NFTs is that the whole process of transferring gaming features is happening decentralized without authoritarianism and the costs of centralized marketplaces. For example, Steam charges a transaction fee of 5%, and at the same time, some online games charge an additional 10% fee. Steam also restricts user wallet balances and places limits to the price 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 refer to digital assets with little to no functionality. At the moment NFT collectibles include sports collectibles 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 are directly linking NFTs to the broad Decentralized Finance (DeFi) ecosystem. The aim is to take advantage of the enormous liquidity within the DeFi sphere. Using financial NFTs you can make various financial transactions, like for example receive a loan by putting part of your NFT portfolio as collateral. Other applications like tokenized insurance contracts are also coming.

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 have ownership over parts of it. Digital real estate incorporates a system of buying, selling and transferring property rights. In the future, commercial users will be able to create virtual shops where other users will be able to 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 certain individuals or by broad communities in order to incentivize a predeterminant action within a community. For example, a social token could launch a competition among web programmers to incentivize the creation of a useful software code that would be later offered to the community. The token holders will decide (with their vote) the distribution of rewards among winners.

Key Projects:

• Collab.land

 

(7) Blockchain domain names

A blockchain domain is a domain asset on the blockchain. The most important project is ‘Unstoppable Domains’ that offers 2 unique features:

(1) Blockchain domains replace complex cryptocurrency addresses with simple human-readable names. That means your clients can send you funds by typing yourname.crypto and you can instantly receive a payment.

(2) Blockchain domains enable the creation of censorship-resistant websites. That is possible as blockchain domains are stored in cryptocurrency wallets and solely controlled by the owner.

Key Projects:

• Unstoppable Domains

• Ethereum Name Service

 

(8) Physical Goods (luxury) Tokens

The market of NFTs for physical goods is in a very primitive 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 chains offer the necessary infrastructure for tokenizing digital assets. For example, there are a few successful NFT projects built on the Flow blockchain. Conceived by the team behind CryptoKitties, Flow was designed for internet-scale protocols, applications, games, and digital assets. https://www.onflow.org/

Nevertheless, as in the case of DeFi applications, Ethereum is the dominant blockchain network for creating NFTs. Ethereum incorporates 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)