Non-fungible Tokens (NFTs): A Guide for Beginners

Distributed ledger technology, including blockchain, is an emerging technology that can compete with traditional business models. Their models rely on slow and costly third parties to build trust between two parties who do not believe each other. However, to make the process easy, instant, and cheap, distributed ledger technologies have led to the concept of cryptocurrency that will eradicate the need for intermediaries. 

Tokenization is the central concept of digital currency that represents a specific thing. The non-fungible token is unique and cannot be substituted. Despite their popularity, some people are totally unaware of this concept. This guide to NFTs will help you understand their importance through their standards, applications, and future.

What is an NFT?

A Non-fungible token (NFT) is a digital token representing the ownership of unique items. It allows the tokenization of real estate, art, plane tickets, and other things. A token can have only one owner at a time, and the same technology secures them behind cryptocurrencies, making sure the token is one-of-a-kind. Fortunately, no one can alter the record of ownership or can create new non-fungible tokens of an already existing one.

How does a non-fungible token work?

Many non-fungible tokens are created and stored on the network of Ethereum, but other blockchains also support NFTs. As anyone can explore the blockchain, it is easy to trace and verify the ownership of NFTs. Still, the identity of the person who owns the token remains a mystery or pseudonymous.

Different kinds of digital goods can be tokenized, for example, artwork products, in-game assets, etc. At the same time, the NFT that holds the ownership is added to the blockchain despite considering the size of the digital item because it remains detached from the chain. However, depending on a non-fungible token, licensing rights might not come with the purchase, but that is not necessarily the case. Likewise, buying print does not grant you all rights to the image.

Standards of NFTs

Before going deep into NFT, it is essential to understand one of the significant aspects of the token operation. There are always some standards that a developer should meet to launch a successful token application. For instance, there are many ERC standards that Ethereum offers. Let’s have a look at them

ERC20

ERC-20 standard holds the set of rules and regulations that a particular product must to ensure interoperability and compatibility with wallets working in Ethereum circles.

ERC721

Utilizing a token standard ERC-721 makes the code writing even more effortless, predictable, and reusable. One of the essential standards allows everyone to build unique NFTs for digital collectibles.

ERC1155

ERC-1155 validates intelligent contracts to facilitate tokens. It allows the developers to make a massive transfer of tickets as per a smart contract that minimizes the influence on the network and makes it possible to keep transaction fees.

Application of NFTs

In the last few years, the popularity of NFTs has increased due to the involvement of many well-reputed companies and individuals. They can be used for the tokenization of digital identities and assets. For better understanding, let’s have a look at some everyday use cases of NFTs

Art

Programmable art is the most famous NFT use case that brings the perfect mixture of technology and creativity. Nowadays, you can look for a few limited edition artworks in circulation. Moreover, they allow the flexibility of programmability for alteration in different scenarios.

Fashion

NFTs have seamlessly stepped into the world of fashion. The consumer can conveniently verify the ownership data of their product digitally. It reduces the risk of fraud. Moreover, buyers can also get to know about the owner before purchasing the asset. The development of non-fungible tokens has made the shopping or retention of valuable assets easy and carefree.

Sports

Counterfeit merchandise is a critical issue revolving around the sports industry. Therefore, blockchain has become a perfect substitute for resolving such issues. The unalterable property of blockchain technology helps prevent the problem of counterfeit tickets and other products.

Gaming

Distributed ledger technology and blockchain games are dominating the non-fungible token market. In-game collectibles forming is the primary application of tokens. Some companies have updated their game to bring in the application NFTs.  However, collectibles have gained much traction through games such as Fortnite that do not even utilize underlying technology.

Digital or physical collectibles

Nowadays, NFTs are being used to create a wholly new class of collectibles. It has become feasible to purchase a tokenized version of a selected sports celebrity. Traditional collectors can also tokenize their products like coins, stamps, or baseball cards.

Social tokens

Social tokens are one of the most popular applications of NFTs. It is a broad category of permits issued by communities to represent ownership in an organization or individual’s success. These tokens can overtake community tokens, fan tokens, personal tokens, and many others. Moreover, users can utilize these tokens to redeem many interactions.

The future of on-fungible tokens

The potential of non-fungible tokens or assets is limitless. Except for in-game collectibles and digital art, NFTs can hold real-world property, qualification of a person, or any distinct or valuable asset that has threat or risk in the real world. Non-fungible tokens validate the physical or digital items to be configured, issued, stored, brought, shared, and sold without third-party involvement and with a device in hand.

Even though non-fungible tokens have gained the spotlight, they are still in their infancy. NFTs are expected to hold great importance in coming years because the entire ecosystem is gradually transforming from gaming or crypto-kitties to decentralized finance, digital identity, and many other cases.

Conclusion

The existing entries in the NFTs list depict the ability of the NFT ecosystem. As a new form of digital asset, they are altering the conventional rules of asset usage and ownership. However, with the applications of non-fungible tokens, it is clearly evident that they have gained profound importance across many industries, and it is expected to increase. With thorough knowledge or authentic guidance in this digital era, you can also get the advantage.