The realm of digital art and collectibles is currently exploding with NFTs. The lifestyles of digital artists are changing as a result of massive sales to a new crypto-audience. And when they see a fresh chance to interact with audiences, celebrities are joining in. Digital art is just one application for NFTs, though. As a matter of fact, they can be employed to symbolize possession of any singular object, such as a digital or tangible property deed.
WHAT'S AN NFT?
NFTs are tokens that we can use to represent ownership of unique items. They let us tokenise things
like art, collectibles, even real estate. They can only have one official owner at a time and they're
secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT
into existence.
NFT stands for non-fungible token. Non-fungible is an economic term that you could use to describe
things like your furniture, a song file, or your computer. These things are not interchangeable for other
items because they have unique properties.
Fungible items, on the other hand, can be exchanged because their value defines them rather than their
unique properties. For example, ETH or dollars are fungible because 1 ETH / $1 USD is exchangeable for
another 1 ETH / $1 USD.
THE INTERNET OF ASSETS
NFTs and Ethereum solve some of the problems that exist in the internet today. As everything becomes
more digital, there's a need to replicate the properties of physical items like scarcity, uniqueness, and
proof of ownership. Not to mention that digital items often only work in the context of their product. For
example you can't re-sell an iTunes mp3 you've purchased, or you can't exchange one company's loyalty
points for another platform's credit even if there's a market for it.
HOW DO NFTs WORK
NFTs are different from ERC-20 tokens, such as DAI or LINK, in that each individual token is
completely unique and is not divisible. NFTs give the ability to assign or claim ownership of any unique
piece of digital data, trackable by using Ethereum's blockchain as a public ledger. An NFT is minted from
digital objects as a representation of digital or non-digital assets. For example, an NFT could represent:
Digital Art: GIFs, Collectibles, Music, Videos
Real World Items: Deeds to a car, Tickets to a real world event, Tokenized invoices, Legal documents,
Signatures
An NFT can only have one owner at a time. Ownership is managed through the uniqueID and metadata that
no other token can replicate. NFTs are minted through smart contracts that assign ownership and manage the
transferability of the NFT's. When someone creates or mints an NFT, they execute code stored in smart
contracts that conform to different standards, such as ERC-721. This information is added to the
blockchain where the NFT is being managed.
SCARCITY
The creator of an NFT gets to decide the scarcity of their asset.
For example, consider a ticket to a sporting event. Just as an organizer of an event can choose how
many tickets to sell, the creator of an NFT can decide how many replicas exist. Sometimes these are exact
replicas, such as 5000 General Admission tickets. Sometimes several are minted that are very similar, but
each slightly different, such as a ticket with an assigned seat. In another case, the creator may want to
create an NFT where only one is minted as a special rare collectible.
In these cases, each NFT would still have a unique identifier (like a bar code on a traditional
ticket, with only one owner. The intended scarcity of the NFT matters, and is up to the creator. A creator
may intend to make each NFT completely unique to create scarcity, or have reasons to produce several
thousand replicas. Remember, this information is all public.
