Introduction

NFTs are digital tokens that we can use to represent ownership of tangible and intangible items, such as a real world object or a digital world object. They allow us to symbolize things like art, collectibles, photography, images, music, and even real estate. Non-fungible tokens can only have one owner at a time, and most non-fungible tokens are based on the Ethereum blockchain. No one can edit or change the ownership record of an existing NFT.

What is a blockchain?

Blockchain is a public, immutable (unchangeable) ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (car, cash, land) or intangible (patents, copyrights, branding).Virtually anything which has a value can be tracked and traded on a blockchain, reducing risks and costs for all stakeholders.

Business runs on information and the faster it’s received and the more accurate it is, the better it is. Blockchain is ideal for delivering that information because it provides immediate and completely transparent information stored on an immutable ledger that can be accessed only by network members with permission.

Elements of a blockchain:

Distributed Ledger

All network participants have access to the ledger and its unchangeable record of transactions. With this shared ledger, transactions are recorded only once, whereas typical business transactions have the problem of record duplication.

Immutable Records

No individual can alter or tamper with a transaction after it has been recorded to the ledger. If a transaction record has an error, a new transaction must be added to reverse the error. Both the transactions will be visible.

Smart Contracts

To speed transactions, a set of rules known as ‘smart contract’ are stored on the blockchain and carried out automatically. In other words, the agreement between the buyer and seller is written in the lines of code automatically. Smart contracts are programs stored on a blockchain and run when certain predetermined conditions are met. They are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome. They can also automate a workflow, triggering the next action when conditions are met. Transferring funds from one party to another is an example. Smart contracts are written in programming languages such as Solidity and Javascript.

Different Blockchains

Currently, there are four types of blockchains: Public, Private, Consortium and Hybrid. Public blockchains are permission-less, allow anyone to join and are not controlled by a single authority (decentralized).Public blockchains allow all nodes of the blockchain to have equal rights to access the blockchain, create new blocks of data, and validate blocks of data. 

Public blockchains are primarily used for exchanging and mining cryptocurrency.  Some popular public blockchains that you might have heard of are Bitcoin, Litecoin and Ethereum, which we mentioned above.  On these public blockchains, the nodes “mine” for cryptocurrency by creating blocks for the transactions requested on the network by solving crypto equations. In return for this work, the miner earns a small amount of cryptocurrency. In NFTs, this transaction fee is referred to as “gas fees”.

Bitcoin vs Etheruem: What’s the difference?

Ether, the currency of blockchain Ethereum is the second most popular cryptocurrency after Bitcoin. While both are cryptocurrencies stored in digital wallets, there are several differences between the two. Bitcoin is a scarce currency and only 21 million bitcoins can be mined, of which 19 million have been mined. Ether has no mining limit i.e. infinite supply and this removes the perceived scarcity factor that shot up Bitcoin’s value. Bitcoin can be used as a recognized currency whereas Ether transactions can only happen on the Ethereum blockchain. Ether’s average transaction time is 7 seconds while that of Bitcoin is 30 seconds. Bitcoin transactions are monetary in nature but transactions can have notes and messages affixed to them. Ethereum transactions can contain executable code to create smart contracts or interact with self-executing contracts and applications built using them.

How does NFT work?

ERC-721 is a free, open standard that describes how to build non-fungible tokens on the Ethereum blockchain. Every NFT is identified by a unique uint256 ID inside the ERC-721 smart contract. This identifying number does not change for the life of the contract. Thus, ERC721 was written to standardize non-fungible tokens and give them a unique identity.

To start working with NFT, you would primarily need 2 things: Metamask Wallet and Ether (ETH). Metamask is the digital wallet via which you make transactions, whereas Ether is the currency you need to make those transactions. NFTs are executed through smart contracts, which assign ownership and transferability of the tokens.

How to purchase an NFT?

Buy some ETH from an exchange like Coinbase and send it to Coinbase Wallet (you can download it through the App store or Google Play store).

After buying ETH, connect your wallet to an online NFT marketplace (like OpenSea.io or Rarible). Once you build your Profile, you will be able to see where all community members can view the collected NFTs. The profile page also keeps track of your favorite NFTs and marketplace activity.

Now you’re ready to browse through the marketplace and purchase an NFT. Some listings will feature a Buy Now option, while others allow you to place an offer to the owner. If you click Make Offer, choose the amount you are willing to pay and the offer’s expiration date. After the exchange is complete, the NFT is transferred into your wallet and appears under the Collected section on your profile page.

NFT trends: How exactly are people using NFTs and its Impact

Let’s take a look at the way NFTs have progressed over the years and the different ways in which they are being used today. The first NFT ‘Quantum’ was minted by Kevin McCoy in May 2014. It was until 2017 that NFTs went public and started to gain popularity with the project ‘Cryptopunks’. 

Art

NFTs started grabbing mainstream attention when renowned digital artist Beeple sold his "Everydays: The First 5000 Days" digital artwork for $69M. NFT’s are thought to only be associated with the art world , but there are many categories in which NFT’s are operating. Traditionally a piece of digital art can be replicated over and over again, leaving the creator, or buyer, with no control over this duplication or a way to authenticate the original work.

An example is one Picasso Painting which had provenance and authentication getting sold for USD 2.2 million. Whereas a different Picasso Painting without provenance but the same size and composition selling for only USD 158 thousands. NFT provides an incontestable and indestructible proof of ownership along with provenance that will last forever, giving the artist a sense of security. 

Metaverse

NFTs are making an impact in the Metaverse. Metaverse is a combination of multiple elements of technology, including virtual reality, augmented reality and video where users "live" within a digital universe. NFTs caught public attention through NFT gaming and metaverse. The first to enter the metaverse market with its Ethereum-based VR platform was Decentraland. In Decentraland, gamers can explore, build, play games and collect items.

It is similar to Minecraft, but whatever you build, find and earn, you own as well. ‘The Sandbox’ is also a popular gaming platform where users can buy, build and sell virtual plots of land. Gamers find deep intrinsic value in their digital identities; their personal history, achievements, communities, stories, and status and spend hundreds of dollars in games, purchasing digital items; such as outfits to give their avatar a unique look, boosts to improve their performance in the game, or unlockable content to discover new stories and worlds.

Social Media and Companies

Besides gaming, Major companies are building within the NFT space:

• Twitter has integrated NFTs and allows users to display their NFT as profile picture

• Facebook is taking part in the building of a metaverse and in 2021, Zuckerberg changed the name of the platform to Meta Platforms and views metaverse as a successor to mobile internet

• Nike is creating NFT verification on shoes

• Coinbase has a NFT marketplace

• Warner Bros. already released Space Jam NFTs and signed a deal with Genies to release Music NFTs

Social Impact

NFTs are creating a positive social impact. ‘Leyline’, a ‘NFT Platform for Social Good’, is a non-profit organization which rewards users with NFT collectibles upon doing a good social deed. Users collect ‘good points’ upon doing a good deed such as a donation, and can spend the good points to mint NFTs. They can then sell the NFTs at a profit. 

Sports

Sports items are quite popular on NFTs and the NBA has gotten involved in it as well. NBA Top Shot is a way of selling digital collectibles in the form of trading cards containing iconic basketball moments. NBA Top Shot has already made over $ 700 million. NBA plans to diversify its revenue stream by adding virtual jewelry, accessories and clothing that can be accessed through social media.

Real Estate

Real estate markets are expected to be penetrated by NFTs in the near future. Contracts, certifications, ownership and claim history will all be stored in the blockchain and publicly accessible. Automating countless paperwork and eliminating several layers of intermediaries. Once more real estate contracts get created as NFTs and stored on a secure blockchain, the risk of real estate fraud will be mitigated.

Tickets

The NFT market is succeeding in the world of tickets, offering a variety of possibilities for fans and event organizers. Alongside attending the live event, buyers collect a digital asset. Organizers are using NFT tickets to offer exclusive access, lifetime value, and extra incentives for buyers. American Rock Band ‘Kings of Leon’ are selling NFTs that will grant lifetime front-row seat access to future concerts. DC Comics is giving out comic book NFTs along with tickets to their DC FanDome event.

Artificial Intelligence

Artificial Intelligence is amalgamating with NFTs in numerous ways. AI is being used to create digital art which is then minted as NFTs. Moreover, AI and NFTs are combining to create artificially intelligent NFTs (iNFTs) that have a personality and have intelligent, sense-making abilities. These iNFTs live on the blockchain. One of these iNFTs, named Alice, recently sold for 478,000. Althea AI and Avastars are also working to create iNFTs.

Should I Consider Investing in NFTs?

You might be thinking that NFTs are an expensive investment. However, you will be surprised to hear that over 50% of sales are under $200, hence the average price of NFTs is relatively low. Similarly, NFT fragmentation is helping buyers who could previously not access high priced non fungible tokens. The NFT is fragmented into smaller and cheaper pieces called ‘shards’, which can then be traded. This is similar to owning shares in a company.

Another way you can make money is by minting your Medical data into NFT. Like survey-taking for market research or participating in studies, individuals can turn their medical data into NFTs and sell it to pharmaceutical companies. Aimedis is the first medical NFT marketplace that has allowed people to democratize their medical records. This aims to give patients greater control over their health information as currently they do not have such control.

NFTs can also be used as collateral, as companies like Drips are offering. Instead of putting your car or physical assets as collateral when taking loans, you may use NFT.

Since asset ownership is tokenized and on a public ledger (blockchain), it is easy to track and transfer ownership of assets via NFTs. Blockchain is fundamentally secure, decentralized, globally accessible, and designed for individual empowerment and wealth growth. It lays the foundation  for an entirely new apps and services layer to the entire internet. From decentralized Finance (De-Fi), social media, streaming services, to games, entertainment, commerce, healthcare, innovations do keep happening.

Summary

Having said that, there are certain concerns related to NFTs that need to be addressed. The biggest concern is the environmental aspect. NFTs work on Ethereum, which requires a proof of work system to confirm each new block.

The process of confirming each block is called mining and a network of computers work to solve the problem, which is an energy intensive process. Ethereum is currently estimated to consume 44.94 terawatt-hours of electrical energy and release 21.35 metric tons of carbon dioxide annually. However, Ethereum is planning to move to ‘Ethereum 2.0’ by mid 2022, which is based on a proof of stake mechanism and essentially does not require mining. This would reduce energy consumption by 99%.

NFTs are a new investment prospect and it is with the passage of time that its true market potential will unfold. Investing in NFTs is a truly personal decision that you should make after assessing all the risks, as the demand of NFTs stems from the amount people assign to the items, and not the value of the item itself.