NFT stands for Non-fungible token. ‘Non-fungible’ means it is unique and can not be replaced by anything else. NFTs are currently taking the collectibles world and digital art by storm. Due to considerable investments in novel crypto-audience, digital arts are changing. But digital arts is not the only medium to use NFTs; there are many others as well. As primarily, they are used to indicate the ownership of any unique digital asset or physical realm.
NFT as tokens:
NFTs are tokens that we can use to represent ownership for any unique items by tokenizing things like art, real estate, and collectives. They are secured by Ethereum blockchain and can only have single ownership. That means no other person can copy/paste or modify the record of ownership of a new NFT into existence.
Ethereum and NFTs resolve many problems that exist on the internet today. As most things become more digitized, there’s a demand to replicate properties of physical assets like scarcity, uniqueness, proof of ownership, and scarcity. Not to raise those digital assets often only work in the context of their product.
Millions saw Beeple’s art that sold for $69 Million, and the picture has been shared and copied unlimited times. In most cases, the artist even preserves the copyright ownership of their unique art so that the owner can continue to sell and produce copies.
The actual Buyer of the NFT has a “token” that authorizes that they are the owner of the “original” work. Some people also compare it with an autographed print.
Understanding cryptography in the modern world:
Cryptography is the method used by intended recipients for seclusion privacy of a message by remodeling it into a form that can be understood only by them. Other than intended recipients, all others will see it as only an incomprehensible sequence of random characters.
There is a pair of public and private keys that will enable the message manipulations. We can share the public key with another person, who used it to encrypt the messages using an incomprehensible sequence. We can use the sender’s private key to decrypt it at the authorized users’ side.
Blockchain is an essential technology for creating NFTs. In this, cryptography is used to chain blocks into a growing list of records. Then, a cryptographic hash or string of characters that uniquely identifies the bunch of raw data to the previous block is used to lock each block.
Merkle tree is used to store transaction records of a chain of blocks like a data structure, which will allow the fast query fetching of old records. To be a party in blockchain-based transactions, each user must create a pair of keys: a public key and a private key. This design makes it very difficult to alter transaction data stored in blockchain.
Different functional marketplaces around NFTs have popped up, which help buyers and sellers to sell/buy according to their requirements and interests. These include Nifty Gateway, Rarible, OpenSea, and Grimes choice, but there are plenty of others.
Advantages & Benefits of using NFTs:
- Limited – limitless NFTs can be produced by NFTs developers and frequently update them to keep interest high.
- Indivisible – not able to divide or access the parts of a digital item unless full payment is done.
- Easily commutable – sale and purchase are easy and done in a unique market and way.
- Trustworthy – forging a permanent and decentralized record is impossible. Just we need to ensure that NFTs are valid.
- Maintain ownership rights – no buyer tends to edit the data in the shared network.
Risk analysis in NFT:
- Evaluation- NFT is a new market where variation in sales/purchases is quite bumpy. There is no assurance of digital assets.
- Memory storage- blockchain technology is used to track the NFTs by establishing ownership. Platforms such as Rarible and Open Sea are the places where real NFTs are stored. However, if these platforms get offline for some reason, there is no guarantee for the data. This makes it less secure.
- Regulations- high level of trust is needed to invest in NFTs, as they are not regulated.
Future scope of NFT:
Experts’ predictions for the future of NFTs are pretty important to note as the Overall market reached $100 million by the end of July 2020. Various experts in the crypto business predict that this will be the entry point for more than 40% of new crypto users. As the credibility of decentralized sectors like finance approaches $4 Billion, it’s not clear whether the NFTs field will explode in the next few years.
The maximum capacity and more enhancements of the NFTs are yet to be reached. It will take time to get acceptance and trust from different sector groups. However, many digital artists and smart characteristics of blockchain will be integrated into asset appraisals in the future.