NFTs - What Are They? How Do They Work? What You Can Do With NFT?| FXMAG.COM

Introduction

The creation of Bitcoin introduced the concept of trustless, digital scarcity. Before it, the cost of digitally copying something was next to nothing. With the advent of blockchain technology, programmable digital scarcity has become possible – letting us map the digital world to the real world.

Non-fungible tokens (NFTs), often referred to as crypto-collectibles, expand this idea. Unlike cryptocurrencies, where each token is equal, non-fungible tokens are unique and limited in quantity.

NFTs are a key building block in a new, blockchain-powered digital economy. Numerous projects have experimented with NFTs in a variety of use cases, including gaming, digital identity, licensing, certificates, and fine art. What’s more, NFTs even allow for fractional ownership of high-value items.

NFTs have become much easier to issue, and we’re seeing increasing amounts minted daily. This article will dive into what NFTs are, what they can be used for, and how a game called CryptoKitties congested the Ethereum blockchain in late 2017.

What is a non-fungible token (NFT)?

A non-fungible token (NFT) is a type of cryptographic token on a blockchain that represents a unique asset. These can either be entirely digital assets or tokenized versions of real-world assets. As NFTs aren’t interchangeable with each other, they may function as proof of authenticity and ownership within the digital realm.

Fungibility means that an asset’s individual units are interchangeable and essentially indistinguishable from each other. For example, fiat currencies are fungible because each unit is interchangeable with any other equivalent individual unit. A ten-dollar bill is interchangeable with any other genuine ten-dollar bill. This is imperative for an asset that aims to act as a medium of exchange.

Fungibility is a desirable property for currency because it enables free exchange, and theoretically, there is no way to know the history of each individual unit. However, that isn’t a beneficial trait for collectible items.

What if we could create digital assets similar to Bitcoin but instead add a unique identifier to each unit? This would make each of them different from all the other units (i.e., non-fungible). Essentially, this is what an NFT is.

How do NFTs work?

There are various frameworks for the creation and issuance of NFTs. The most prominent of these is ERC-721, a standard for the issuance and trading of non-fungible assets on the Ethereum blockchain.

A more recent, improved standard is ERC-1155. It enables a single contract to contain both fungible and non-fungible tokens, opening up a whole new range of possibilities. The standardization of the issuance of NFTs allows a higher degree of interoperability, which ultimately benefits the users. It basically means that unique assets can be transferred between different applications with relative ease.

Binance Smart Chain (BSC) has its own NFT standards: BEP-721 and BEP-1155. These two provide similar functionality to the previously mentioned Ethereum standards. Both have become attractive for creators looking to mint NFTs as the cost is substantially lower than Ethereum.

If you are looking to store and gaze upon the beauty of your NFTs, you can do that in Trust Wallet. Just like other blockchain tokens, your NFT will exist on an address. It’s worth noting that NFTs can’t be replicated or transferred without the owner’s permission – even by the issuer of the NFT.

NFTs can be traded in open marketplaces, including Treasureland, BakerySwap, and Juggerworld on BSC, and OpenSea on Ethereum. These markets connect buyers with sellers, and the value of each token is unique. Naturally, NFTs are prone to price changes in response to market supply and demand.

But how can such things have value? Just like with any other valuable item, the value isn’t inherent to the object itself but is rather assigned by people who deem it valuable. In essence, value is a shared belief. It doesn’t matter if it’s fiat money, precious metals, or a vehicle – these things have value because people believe they do. This is how every valuable item becomes valuable, so why not digital collectibles?

What can NFTs be used for?

NFTs can be used by decentralized applications (DApps) to issue unique digital items and crypto-collectibles. These tokens can either be a collectible item, an investment product, or something else.

Gaming economies are nothing new. And since many online games have already had their own economies, using blockchain to tokenize gaming assets is taking only a step further. In fact, the use of NFTs could potentially solve or mitigate the common problem of inflation that many games have.

While virtual worlds are already flourishing, another exciting use of NFTs is the tokenization of real-world assets. These NFTs can represent fractions of real-world assets that can be stored and traded as tokens on a blockchain. This could introduce some well-needed liquidity to many markets that otherwise wouldn’t have much, such as fine art, real estate, rare collectible items, and many more.

Digital identity is also a sector that can benefit from the properties of NFTs. Storing identification and ownership data on the blockchain would increase privacy and data integrity for many people around the world. At the same time, easy and trustless transfers of these assets could reduce friction in the global economy.

How do I make NFTs?

Creating your own NFTs on either BSC or Ethereum is a simple process offered by numerous platforms and NFT exchanges. All you need to get started is some crypto to pay your minting fee and something to turn into an NFT. You’ll also need to choose between minting your NFT on Ethereum or Binance Smart Chain.

Ethereum has traditionally been the home of NFTs and their development. It has a large user base and well established NFT community, but transaction fees are very costly. This makes small purchases, sales, and transactions costly for users. BSC is a newer blockchain but has already seen a lot of growth in its NFT markets. Transactions are also much cheaper.

Our guide on How to Make Your Own NFTs will teach you the process of turning your creations into non-fungible tokens.

How do I buy NFTs?

As we mentioned, NFT marketplaces are the first place you should look if you want to buy non-fungible tokens. But that’s not all the information you need. You can’t just buy NFTs with a credit card or PayPal. A crypto wallet and some crypto are essential to the process.

For Binance Smart Chain NFTs, prices will almost always be in BNB. Ethereum NFTs will typically use ether (ETH). Both of these cryptocurrencies are available to buy on the Binance exchange. Once you’ve purchased your chosen crypto, move the funds to a wallet that can interact with NFT marketplaces.

Binance Chain Wallet and MetaMask are good options for browser extension wallets. Both can be connected to an NFT marketplace. You just need to transfer your crypto from Binance to your wallet, go to the marketplace’s website, and connect your wallet (the connect button is usually in the top right corner). Be careful with fake or suspicious websites. Double-check the URL and consider bookmarking if you use it often.

If you prefer a mobile experience, take a look at Trust Wallet. It’s available for both iOS and Android and also supports multiple blockchains. Don’t forget that interacting with Ethereum and BSC isn’t free! It’s always worth having some extra crypto for paying transaction fees.

The story of CryptoKitties and Ethereum

One of the first NFT projects to gain significant traction was CryptoKitties, a game built on Ethereum that allows players to collect, breed, and exchange virtual cats.

Each CryptoKitty can have a combination of several different properties, such as age, breed, or color. As such, each of them is unique, and they can’t be interchanged with each other. Also, they are indivisible, meaning that there’s no way to divide a CryptoKitty token into smaller parts (such as the gwei for ether).

CryptoKitties gained some notoriety after it congested the Ethereum blockchain due to the high activity it stirred up on the network. An estimated 25% of Ethereum’s traffic in December 2017 was related to these collectible cats. It’s clear that the game caused a big impact on the Ethereum network, but other factors also contributed to it, including the Initial Coin Offering (ICO) boom.

CryptoKitties is an early example of a blockchain use case that isn’t a currency, but something used for recreation and leisure. Collectively, these virtual cats moved millions of dollars, and some of the rare units were sold for hundreds of thousands of dollars each.

Popular projects using NFTs and crypto collectibles

Many different projects already use NFTs as collectible and tradable items. Let’s go through a selection of some of the most popular ones.

Decentraland

Decentraland is a decentralized virtual reality world where players can own and exchange pieces of virtual land and other in-game NFT items. Cryptovoxels is a similar game where players can build, develop, and exchange virtual property.

PancakeSwap

PancakeSwap is BSC’s most used automated market maker by volume, and it has one of the most popular NFTs. The project releases collectible bunnies in giveaways and competitions to the platform’s users. Some are purely decorative, and others are exchangeable for CAKE, the platform’s native token.

Gods Unchained

Gods Unchained is a digital collectible card game where cards are issued as NFTs on the blockchain. Since each digital card is unique, players can own and trade them with the same level of ownership as if they were physical cards.

CryptoPunks

CryptoPunks are collectible pieces of digital art, each one depicting a unique, 8-bit-style NFT character. The project was an inspiration for the ERC-721 token standard and was one of the first examples of a crypto art craze. CryptoPunks have since sold for millions of dollars and inspired many similar projects around the world.

Binance Collectibles & NFTs

Binance gives out NFTs in special giveaways, as well as to users based on their Binance activity. From trading futures to Pizza Day NFTs, you can regularly get your hands on Binance collectibles that are also tradeable.

Binance Collectibles is another example. These are NFTs issued in collaboration with Enjin. If you’d like to get your hands on one, make sure to follow Binance on Twitter and look for the next giveaways! If you’d like to participate in an NFT giveaway, follow these short steps:

1. Download a wallet that supports Ethereum, such as Trust Wallet.

2. Copy your Ethereum address and provide it according to the giveaway rules. You might have to submit it through a form or leave it as a Twitter comment. Be sure to double-check the rules to know what you need to do to enter.

3. If you’ve won an NFT and it’s been distributed, you’ll see it under the Collectibles tab in Trust Wallet. From then on, you can choose to either HODL or sell at a P2P marketplace.

The Binance NFT Marketplace allows users to mint and trade NFTs of their own creation. It includes exclusive NFTs from famous creatives around the world, such as the musician Lewis Capaldi and crypto artist Trevor Jones. The platform also offers royalties to creators for any subsequent sales through the marketplace.

Crypto Stamps

Crypto Stamps are issued by the Austrian Postal Service and connect the digital world to the real world. These stamps are used to transport mail like any other stamp. But, they are also saved as digital images on the Ethereum blockchain, making them a tradable digital collectible.

Closing thoughts

Digital collectibles open up blockchain technology to whole new avenues outside of conventional financial applications. By representing physical assets in the digital world, NFTs can be a vital part of the blockchain ecosystem and the wider economy.

The use cases are vast, and it’s quite likely that many developers will come up with new and exciting innovations for this promising technology.