• Lawrence Cummins

Non-Fungible Token "NFT's".




A non-fungible token (NFT) is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable. NFTs can be used to represent items such as photos, videos, audio, and other types of digital files. Access to any copy of the original file, however, is not restricted to the buyer of the NFT. While copies of these digital items are available for anyone to obtain, NFTs are tracked on blockchains to provide the owner with a proof of ownership that is separate from copyright.


Non-fungible digital assets that have value. They can represent almost anything, from physical gift cards to virtual currency. NFTs can represent a wide range of items in the digital world, including cars, houses, currency (in both physical and digital form), art (either physical or digital), music and software, to name a few.


The [non-fungible token (NFT)] space is a bit different than the standard utility tokens that offer either rewards or partial ownership in return for an investment. Non-fungible tokens are unique in the sense that each token consists of its own metadata and value, making it completely unique. They can contain information about the fact that they‘re distinct from any other token. Information that makes a token non-fungible could include the name of the owner, picture of the owner, the unique number of tokens produced, or even a timestamp.


Whether you buy and hold, trade, or sell assets, non-fungible tokens or NFTs are quickly becoming the backbone behind the next generation of blockchain technology. NFTs are digital assets on the blockchain that can be traded peer to peer, never copied, and are unique in that they represent something else on the blockchain. This makes them an indispensable manner of storing data in a secure, censorship-proof and tamper-proof manner.


With [non-fungible tokens] (NFTs) emerging as a new asset class, there are companies in the cryptocurrency space developing tools and platforms to allow owners of NFTs to manage and trade them. Integrating with these tools can create a seamless user experience for customers looking to buy or sell NFTs.


In March 2021, digital art by the artist known as Beeple [sold] in an auction at Christie’s for $69.3 million. The buyer purchased the NFT in [Ether] which was a first for Christie’s.


Ethereum used in NFT's

ERC-721was the first standard for representing non-fungible digital assets on the Ethereum blockchain. ERC-721 is an inheritable Solidity smart contract standard, meaning that developers can create new ERC-721-compliant contracts by importing it from the Open Zeppelin library. ERC-721 provides core methods that allow tracking the owner of a unique identifier, as well as a permissioned way for the owner to transfer the asset to others.


The ERC-1155 standard offers "semi-fungibility", as well as providing a superset of ERC-721 functionality (meaning that an ERC-721 asset could be built using ERC-1155). Unlike ERC-721 where a unique ID represents a single asset, the unique ID of an ERC-1155 token represent a class of assets, and there is an additional quantity field to represent the amount of the class that a particular wallet has. The assets under the same class are interchangeable, and the user can transfer any amount of assets to others.


NFT Market Value

The NFT market has seen rapid growth recently with its value tripling to $250 million in 2020. In the first three months of 2021 alone, more than $200 million were spent on NFTs. The economic momentum NFTs have in the crypto market has exploded because of a trend towards digital collectibles. NFTs are also accelerating a larger trend of digital economic innovation as the public is increasingly favoring a crypto-economy.


Many investors are willing to pay high rates to secure and promote NFTs and continue to do so because they anticipate NFTs to be the biggest and most profitable collectibles in the future. Venture capitalist David Pakman has claimed that the growing value of NFTs is redefining the major entertainment industry as of early 2021. Investors like Mark Cuban have already begun to propose new ways of implementing NFT technology to monetize sports tickets and merchandise sales.


Uses

NFTs of artworks are similar to autographed items. The unique identity and ownership of an NFT is verifiable via the blockchain ledger. NFTs have metadata that is processed through a cryptography hash function.


Digital art

Digital art was an early use case for NFTs, because of the ability of blockchain technology to assure the unique signature and ownership of NFTs. Digital artwork entitled "Everyday – The First 5000 Days", by artist Mike Winkelmann, also known as Beeple, sold for US$69.3 million in 2021.The purchase resulted in the third-highest auction price achieved for a living artist, after Jeff Koons and David Hockney. Another Beeple piece entitled "Crossroad", consisting of a 10-second video showing animated pedestrians walking past a figure of Donald J. Trump, sold for US$6.6 million at Nifty Gateway, an online cryptocurrency marketplace for digital art.


Collectibles

NFTs can represent collectibles like card collections but in a digital format. In February 2021, a LeBron James slam dunk NFT card on the NBA Top Shot platform sold for $208,000.


Games

NFTs can also be used to represent in-game assets, such as digital plots of land, which are controlled by the user instead of the game developer. NFTs allow assets to be traded on third-party marketplaces without permission from the game developer. In February 2021, Axie Infinity recorded a sale of $1.5 million for digital land titles in a single sale.


Music

Blockchain and the technology enabling the network have given the opportunity for musicians to tokenize and publish their work as non-fungible tokens. This has extended the list of options for musicians and artists alike to monetize and profit from their music as well as other content surrounding the themes of the music and the artists public image.


Additionally, NFTs have provided the opportunity for artists and touring musicians to recuperate lost income to due to the 2020 COVID-19 pandemic which resulted in music industry revenues to fall nearly 85%.


Similar to limited edition merchandise or a physical copy of an artist's work, NFTs allow more avenues for fans to connect with and support their favorite bands or artists.


NFTs were extremely influential to the music industry within 2021 where many artists across all genres explored the usage of NFTs in their streams of revenue. In February of 2021 alone, NFTs reportedly generated around $25 million within the music industry leading to increased ventures in the medium by more artists.


On March 3, 2021, rock band Kings of Leon became one of the first to announce an NFT album release for their project When You See Yourself. The NFT went on to generate a reported $2 million in sales in which more than quarter of the revenue was donated to charity benefiting live entertainment workers. Later the same month, American rapper Lil Pump partnered with the NFT platform Sweet to release a special NFT collection.


Early of May 2021, the estate of rapper XXX Tentacion announced that it would release five songs and previously never before seen footage from his 2017 tour as an NFT collection. The upcoming release will mark the songwriter as the first artist to have their music posthumously released as an NFT. The artists estate has revealed that company Yellow Heart will be helping distribute the collection, who also played a role in the Kings of Leon release.


Record producer and frequent music industry collaborator Mike Dean whose best known for his work with artists such as Travis Scott and Kanye West united with artist Shepard Fariey to release their NFT collection "OBEY 4:22" on April 23 2021. The release serves as the follow up to Dean's 2020 album "4:20". The NFT collection was only available during a 15 minute window in which all of the music of "4:22" was performed and improvised through a series of live streams through Twitch and Instagram live.


Film

The motion picture industry has been slower to react to the boom in NFTs, in part owing to the technical challenges of storing digital movies – which are typically very large in size onto blockchain technology, which is designed for smaller file sizes.] On March 13, 2021, Adam Benzine's Oscar-nominated documentary Claude Lanzmann: Spectres of the Shoah became the first motion picture, documentary and Academy Award-nominated film to be minted and auctioned as an NFT, via the Rarible platform.


Several other tentative and experimental releases from filmmakers, studios and agencies have followed, with Legendary Entertainment announcing it would release an exclusive Godzilla vs. Kong NFT collection on the same day the film hit theatres; director Kevin Smith announcing in April 2021 that his forthcoming horror movie Killroy Was Here would be released as an NFT; and talent agencies such as UTA and Endeavor announcing NFT-related ventures.


Sports

Athletes are starting to take advantage of the NFT boom in various ways. In September 2019, NBA player Spencer Dinwiddie tokenized his contract so that others can invest into it. In addition, Dapper Labs, a blockchain technology-based company, has collaborated with the NBA to create "N.B.A Top Shot", a marketplace for digital highlight clips.


In March 2021, pro tennis player Oleksandra Oliynykova offered prospective NFT buyers the lifetime rights to part of her right arm.


Fashion

In 2019, Nike acquired a patent that allows for blockchain technology to attach cryptographically secured digital assets in the form of NTF's to physical products, such as a pair of sneakers, under the name "Crypto Kicks".


Environmental Concerns

NFT purchases and sales are enmeshed in a controversy regarding the high energy use, and consequent greenhouse gas emissions, associated with blockchain transactions. A key aspect of this is the proof-of-work protocol required to regulate and verify blockchain transactions on public networks, which consumes a large amount of electricity. Estimating the carbon footprint of a given NFT transaction involves a variety of assumptions about the way the transaction is set up on the blockchain, the behavior of blockchain miners, and the amount of renewable energy being used on these networks.


Some more recent NFT technologies use alternative validation protocols, such as proof of stake, that have much less energy usage for a given validation cycle. Other approaches to reducing electricity include the use of off-chain transactions as part of minting an NFT. Several NFT art sites are also looking to address these concerns, and some are moving to using technologies and protocols with lower associated footprints. Others now allow the option of buying carbon offsets when making NFT purchases.


Reference: Crypto Market Cap.

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