What are NFTs, and why are they disrupting the art world?

What are NFTs?

A major feature of cryptocurrency is that it can create new hotspots, and new hotspots can surpass the innovation capabilities of the cryptocurrency community itself. The rise of NFT is a good proof. But what exactly are NFTs? NFT refers to non-homogeneous tokens, which are digital objects verified on the blockchain and have characteristics such as uniqueness and non-homogeneity. NFTs can fall into almost any category, but most notably in the form of art, music, and as items in blockchain-based video games and videos.

One particular area where NFTs are all the rage is the art world. NFTs have sold for tens of millions of dollars at major auction houses. Emerging artists who once released their work for free or sold it cheaply are realizing that they can cash in on their talent by using blockchain technology and NFTs.

It's still early days for NFTs. NFTs entered the public eye in 2017 through a decentralized application (DApp) called CryptoKitties, where users can buy, trade and collect virtual cats.

In 2020, the NFT market will increase by nearly 300% year-on-year, exceeding US$250 million. These exquisite digital assets have since captured the imaginations of traders and creators. Another sign of rising NFT adoption is that the number of NFT wallets used for NFT exchanges nearly doubled in 2020, growing by more than 222,000 year-over-year.

You don’t need to be in the cryptocurrency world for long to hear the name NFT — NFTs are widely known even outside of crypto circles. Once you hear about NFTs, you may quickly decide to go down the NFT rabbit hole like the rest of the community, or try to sell NFTs at a premium, or mine some digital art to diversify your portfolio. But, before you jump in, it's best to understand the NFT ecosystem and how it works.

What is the principle of NFT?

NFTs differ from ERC-20 tokens such as DAI and LINK because each NFT is unique and indivisible. NFTs allow the distribution or claim of ownership of any unique piece of digital data that can be tracked using Ethereum's blockchain as a public ledger.

NFTs are created by digital items as representations of digital or non-digital assets. For example, NFTs can represent real-world items, such as legal documents, signatures, or digital art, such as videos or music. So, what is NFT digital art? NFT digital art is an Ethereum-based asset that represents a certificate of ownership and authenticity for a work of art.

An NFT can only have one owner at any given time. Ownership is managed by using uniqueIDs and metadata that cannot be replicated by other tokens. Smart contracts that assign ownership and manage the transferability of NFTs are used to create unique IDs and metadata.

When someone generates or mints an NFT, smart contract code following various standards such as ERC-721 is executed. This data is stored on the blockchain, which is where NFTs are processed.

In addition, NFT has the following characteristics:

How are NFTs different from cryptocurrencies and fiat currencies?

The value of NFTs revolves around the non-fungibility of these digital assets, a feature that sets them apart from cryptocurrencies, since NFTs and cryptocurrencies are different things. Each NFT has its own unique set of attributes -- such as size, scarcity, creator, etc. -- and therefore cannot be exchanged for other assets.

Instead, Bitcoin (BTC) is a fungible asset. If you are lucky enough to own 1 BTC and exchange it for another 1 BTC, nothing changes. You still have the same amount of bitcoins.

The same goes for fiat currencies like the dollar or the euro, as well as other fungible assets. A dollar or euro banknote is interchangeable with any other dollar or euro banknote, regardless of characteristics. For example, banknotes with different serial numbers are interchangeable whether they come from your pocket or your bank account. What's harder to tell the difference is that if you have a coin that's considered a collector's item, then that coin falls under the irreplaceable category.

Another practical example is baseball cards, which are more like non-fungible tokens given that one card is not equivalent to another. By the way, the concept of non-fungible tokens also exists in Major League Baseball (MLB), National Basketball Association (NB ) and other sports organizations, individual teams and athletes.

What is the value of NFT?

In theory, anyone can tokenize their work and sell it as an NFT. But what we hear most often are the headlines of various acquisitions of NFTs at millions of dollars.

Grimes, for example, has sold some of her digital paintings for more than $6 million. It's not just artwork being sold as NFTs. Twitter CEO Jack Dorsey sold his first tweet as an NFT for as much as $250.

Sorare, a French company that offers football trading cards in the form of NFTs, raised $680m (£498m). However, as with cryptocurrencies, there are concerns about the environmental impact of NFTs.

Why are NFTs getting so much attention?

2012/2013 saw NFTs first appearing in the cryptocurrency industry, depending on how broadly you define them, after all they didn't make it onto the Ethereum blockchain until 2017. Since then, however, most NFTs have been created on the Ethereum blockchain. While Ethereum is not the only blockchain on which NFTs can be built and traded, it is the most popular. The primary standard for NFTs on the Ethereum blockchain is ERC-721.

When a transaction occurs on Ethereum, the wallet that initiated the process must pay the miner a so-called gas fee. The problem with non-fungible tokens on the Ethereum blockchain is that it is an expensive network, and when the demand to make transactions is high, those gas fees can be prohibitively high.

The high price is due to the popularity of NFTs, coupled with the lack of scalability of the current version of the Ethereum blockchain. This scalability issue is about to change as the project moves from the Proof-of-Work (PoW) consensus algorithm to Ethereum 2.0 (Eth2) . Until then, NFT creators must weigh whether the exorbitant fees are worth it, or whether they should try another blockchain, or ditch NFTs entirely.

Although NFTs have been around since 2012, they have only recently become popular due to their celebrity ties and exclusivity. For example, before his fight with Floyd Mayweather, Logan Paul told his supporters that they could win the first edition if they bought his NFT collector's card Pokémon card pack.

In the so-called "gold rush", NFT trading sites like OpenSea have also ushered in a period of barbaric growth. However, is this just speculative hysteria? Will the bubble inevitably burst as the powerful try to cash in on intangible assets?

While hyperinflation of value has long been part of the business model of the art world, NFTs may offer new options for smaller artists. One of the advantages of NFT is that if the artwork or music increases in value when resold, its creator can receive royalties.

We might start imagining a world in the music industry where artists get most of the sales revenue without money-grabbing middlemen like record labels.

It's also a potentially life-changing tool for content creators involved in meme culture. For example, their parents likely thought art was a "waste of time," but they can now actually turn art into something. All hail a new era of monetized, digital comedy.

NFTs are going to make waves, whether you like them or despise them, whether you want to buy NFTs or turn your music or artwork into NFTs. As a result, many people are watching for an opportunity to get rich overnight, or be wary of impending disaster, which can happen in the early stages of the NFT concept. We have to pay attention to this.

Will NFTs Change the Art World?

NFTs are sure to change the art world. For example, prehistoric cave art dates back to the Paleolithic period between 290,000 BC and 700,000 BC. However, art has moved away from cave paintings and rock carvings, and NFTs are giving creators new ways to earn income from their creations and attract new followers.

If you want to know how NFT has changed the art world, you might as well check out Christie’s auction house, which has a history of more than 250 years. Here, digital artist Mike Winkelmann, aka Beeple, sells one of his JPG creations — Everydays: The First 5,000 Days — for $69 million. ). It’s a sign of the times and a testament to the significant impact of the blockchain space on modern art.

Judging by the amount generated at the auction, this work made Beeple one of the three most expensive living artists today. While you might see NFTs hanging in museums, like some of Christie’s other famous auction items, you can rest assured that art owners will boast that they can prove on the blockchain that they are the true owners. Beeple's story is also important because his foray into the fine art world only started when he stumbled across NFTs. This shows how quickly new artists can become phenomenal in this age of digital art.

When Christie’s announced that it would auction off Beeple’s NFT, Asian investors immediately flocked, with nearly one-fifth of the 33 digital art bidders coming from Asia. Singaporean cryptocurrency investor "MetaKovan" finally won the auction.

Beeple is not the only case of profiteering from NFTs. Take CryptoPunks, for example, a collection of 10,000 24x24 pixel wacky characters, including zombies and aliens, built on the Ethereum blockchain. CryptoPunks claimed to have created the first NFT on Ethereum and became a source of inspiration for the market, triggering countless imitations like wildfire.

Like Beeple, the digital artists have reaped huge profits from their NFT artwork, including the sale of nine portraits worth nearly $17 million — also at Christie’s. The limited-edition nature of CryptoPunks makes for a hefty price tag. For example, CryptoPunk 635, a member of the Nine, wears sunglasses and has a blue face. This is one of only nine alien portraits in the series.

Not to be outdone, musician Grimes also jumped on the NFT bandwagon, making an estimated $6 million selling a collection of digital artwork and videos. Her first work was a video called "Death of the Old Man," the only NFT of its kind. This NFT alone earned nearly $389,000.

What are NFTs used for?

Real items like artwork and real estate can all be represented with NFTs. These real-world tangible goods can be "tokenized," allowing them to be bought, sold, and traded more efficiently while reducing the risk of fraud.

Art

The most common application of NFT encryption is programmable art, which uniquely combines creativity and technology. Various limited edition artworks are available now. Amazingly, they enable programmability to make changes in different situations. For example, smart contracts and oracles could allow artists to create visuals that respond to price fluctuations in blockchain-based digital assets.

Fashion

With the promise of benefits for all supply chain partners, blockchain has been easily integrated into the fashion industry. Consumers can look up ownership information online for the items and accessories they purchase, eliminating the risk of counterfeiting. For example, clothing and accessories are displayed in the form of NFT, and users can easily verify the authenticity by simply scanning the QR code on the price tag of clothing and accessories.

Licenses and Certifications

NFTs can also be used to confirm licenses and certifications. Students who qualify for completion typically receive a digital or physical certificate of course completion, similar to any other degree certificate or license. However, in practice, before companies or institutions make an offer to someone, they often also require a copy of the certificate as a reference.

With NFTs, administrators can save a lot of time accessing such certificates. NFT-based certificates and licenses ease the burden of record checking and verification. Therefore, NFT technology can conveniently track certificates of completion or proof of license.

physical education

The most serious problem affecting the sports industry is counterfeit tickets and products. Blockchain is the ideal solution to address such challenges without hassle. The immutability of blockchain technology helps prevent counterfeit collectibles and counterfeit tickets.

game

NFT has also left its mark on the encrypted game industry and has had a profound impact on the entire game field. CryptoKitties took the lead in combining the functions of games and NFTs in 2017, issuing digital cats on the blockchain and enabling users to interact and trade with them. This model was so successful that it once caused the Ethereum network to be clogged with a large number of transactions in a short period of time.

Since then, games have become a key use case for NFTs, which isn't too much of a stretch given the nature of product sales like game skins, but has clearly hit traditional markets.

When it comes to NFTs, there is a crossover between traditional gaming companies and decentralized startups, as both look to benefit from digital cards, artwork, and even fashion on the blockchain. The connection between NFT and games is very strong, and this combination is sure to continue to disrupt the industry, because players not only want to become competitors in the game, but also seek to become investors.

How can NFT reshape the digital world?

NFTs are attractive to collectors, investors, and traders. They are a digital version of a product, like a piece of art, giving the owner a certified version of that asset. But that's a long way to go in the art world, where owning the real thing—an official, unique edition—is more valuable than owning a copy of it.

Take the statue of David, for example. Do you want to own the original sculpture or a perfect replica? The answer to this question is subjective and depends on how you look at the artwork. The same concept applies to NFTs as well. In the world of NFTs, the owners of these digital assets have verified the proof of ownership on the blockchain, and they believe that the asset itself will increase in value, or can increase the immeasurable value of their collection.

Homogenization or lack of homogenization is the core of the value of NFT, and the value of NFT is reshaping the digital world. Like the art world itself, NFTs also use the creative idea of genius to give an item great value.

Users can issue or buy NFTs on numerous marketplaces. Usually all that is required is to have a digital wallet and digital currency. There are many ways to buy NFTs, including direct purchases and auctions. Users can not only buy NFTs on digital platforms, but also in some well-known auction houses, such as Sotheby's, which accept cryptocurrency payments to buy NFTs.

How to buy and sell NFT?

Most NFT marketplaces operate similarly to auction houses. You bid and then wait for the outcome of the auction. Certain sites, such as eBay, offer a "buy it now" option to buy NFTs at a set price. OpenSea.io, SuperRare, Foundation.app, Rarible, and Mintable are all common NFT marketplaces.

Note that each market has its own crypto wallet requirements. There is currently no single wallet that can be used on all sites. MetaMask is the most widely used crypto wallet, and other crypto wallets include Formatic, Torus, Coinbase Wallet, and Portis.

Trading NFTs you previously bought and selling NFTs you minted are two ways to sell NFTs. First, there are fees for selling your NFT, just as there are fees for minting NFTs. This includes gas bills and final sales service charges as determined by the market.

Previously purchased NFTs can be resold on secondary markets, as can any other asset. To do this, make sure the relevant NFT is in your crypto wallet and listed for sale on your preferred marketplace. While the value of your NFT may increase over time, there is no guarantee of long-term or even short-term value for an NFT.

Depending on the service, you can set a "buy it now" price, or you can specify auction rules, such as a reserve price for selling minted NFTs. In some cases, you may receive royalties each time your NFT is sold in the future. Likewise, while the value of your NFT may increase over time, there is no guarantee of long-term or even short-term value for the NFT.

Are there any problems with NFTs?

NFT is not a physical object and cannot be stolen from a real safe, which does not mean that NFT is 100% safe. Similar to the cryptocurrency industry, the NFT industry itself is still a nascent market, with many thorny problems for developers to solve and users to be educated.

The development of NFT is hindered and long. Even while still under construction, NFTs are already in the limelight. If it falls into the wrong hands, this could be a recipe for disaster.

Newcomers to the cryptocurrency industry may still have difficulty sending Bitcoin (BTC) or Ether (ETH) to the correct address. With the rise of NFTs, they must now understand the MetaMask wallet and the various blockchains on which NFTs can be built. In a decentralized world where there is no third party to return funds or products to their rightful owners, this can all be stressful for new users and potentially lead to irreparable mistakes.

At the same time, there are security issues. While blockchain's immutability is designed to prevent fraud, that hasn't stopped scams from happening in the NFT space. Bad guys have found ways to infiltrate emerging markets, and NFTs are no exception, including in terms of copyright.

According to social media reports, certain fraudulent artists managed to capture tweets from some accounts, turning around and selling them as their own NFTs. While the industry caught on to the practice, and Twitter subsequently cracked down on it, this example shows how scams are still rife in a nascent market.

future outlook

The growth of the NFT market has been impressive over the past year. In 2020, most of the popular NFT platforms have not even appeared yet, and early 2021 saw an unprecedented surge in activity and transaction volume. Even if this trend continues at a slower pace, the overall adoption rate of NFTs (like crypto art) will remain unprecedented in the coming years.

While NFTs can be difficult to value, characteristics such as uniqueness, tradability, talent, and whether the original artist was behind the sale all affect price. Embracing the next wave in the NFT market may be another craze sweeping the cryptocurrency market: decentralized finance (DeFi).