The term NFT has become rather mainstream over the past few months. Short for non-fungible tokens, NFTs are unique digital assets that have presented a gateway for a new wave of crypto adopters during the current cycle. The innovative property that NFTs brought to the digital space is the ability to recreate scarcity and provide proof of authenticity of online assets.
An Introduction to NFTs
Traditional crypto assets, such as Bitcoin and Ethereum retain properties such as fungibility and interchangeability. NFTs in contrast are non-fungible and not interchangeable. These two items are explained below with examples.
Fungibility implies that a token can be separated into many small parts. For instance, someone can have 0.5 BTC or 1.1 BTC. In contrast, a NFT is non-fungible which means 1 NFT cannot be separated into smaller parts.
Interchangeability allows tokens to be changed for one another. For example, one BTC has the same value as any other BTC. In contrast, each NFT is not interchangeable and each token is unique across the blockchain. A fair analogy would be to compare NFTs with real-world assets such as fine art, so the Mona Lisa for example is not the same as a Monet.
For a while, it was impossible to recreate authenticity on the web since online content is designed to be shared. Ranging from music piracy to just reposting and saving locally, original pieces were inodiffereciable from their copies. A picture of the Mona Lisa, for example, could be shared and stored by millions of users on their electronic devices with no plausible way to identify who posted it originally. NFTs were created to meet the demand for verifying authenticity in the digital era.
If an asset is turned into an NFT, it is attributed to a unique token that records its existence on the blockchain. This way, it opens up a plethora of opportunities related to recording ownership and IP of pieces found online while also helping to create tradable assets.
The Genesis of NFTs
The first experiments with NFTs began when a project called Counterparty issued a representation of physical collectibles on the web. Notably in 2017, a set of unique NFTs created on the Ethereum blockchain called Cryptopunks rapidly rose to prominence. These novel assets received widespread recognition among the crypto community and recorded massive gains.
However, it took yet another project called Crypto Kitties for NFTs to finally become mainstream. Crypto Kitties were in essence breedable cat avatars that could be traded in a similar fashion to Pokemon trading cards. The demand to trade these digital cat NFTs exceeded the capabilities of the Ethereum blockchain, leading to astronomical gas prices. Perhaps, the prematurity of the blockchain infrastructure at the time prevented the mass adoption of NFTs that we see today.
Since 2017, the Ethereum community has been trying to solve one of the most prominent barriers of adoption - scalability, yet the demand is arguably still not met. Burnt Finance, an Injective incubated project has taken on the challenge of meeting the surging NFT demand. Built on Solana, Burnt will allow users to auction and bid on NFTs with negligible transaction fees and blazing fast speeds.
NFTs in the 2020/21 Cycle
Starting in mid-2020, NFTs have once again spread like wildfire. Celebrities from famous musicians like Kings of Leon to NBA Players started experimenting with tokenizing their work and selling it as NFTs. An influx of new creators began to delve into the space in order to monetize their original works. Some common examples include artists turning their art into NFTs or influencers turning memes into NFTs.
A notable event that signified the acknowledgement of NFTs as a paradigm shift in the art world was the recent NFT auction held by Christie’s. The world famous auction house sold a collage from the well-respected artist Beeple as an NFT for $69 million.
The future of NFTs and their immense possibilities are still being explored. However, we can already see rising adoption in the gaming, art, and collectibles industries.
NFTs quickly became popular in the gaming industry as the underlying technology can solve the industry’s inherent problems. For instance, top games such as Fortnite prohibit the sale of rare traits and accessories such as weapons and skins. However, with NFTs these features can easily be transferred and used in different games. As such, NFTs can help to create an entirely new in-game economy.
Artists have been at the forefront of adopting NFTs. Assets such as paintings, online graphics, GIFs or videos put on the rails of blockchain acquire value via scarcity and authenticity properties. This enables immense opportunities for digital artworks to be discovered, traded, and collected digitally. To support creators and collectors, a number of platforms like Burnt Finance are developing the infrastructure to tackle the challenges towards NFT mass adoption.
NFTs can also aid in the prevention of identity theft on the Internet. For example, academic qualifications, medical records, and even human appearance can be digitized on the blockchain. Furthermore, digital artists can turn their work into NFTs to protect their any form of copyright. In event planning, physical tickets can be converted into NFTs to weed out counterfeits.
NFTs have ushered in a new era for the world of collectibles. Consequently, conventional collectors have begun to focus on digital assets. Art, watches, wine, and NBA trading cards have all been tokenized and auctioned online on NFT marketplaces.
Advantages of NFTs
Non-fungible tokens have brought a new dimension to digital interactions. The three notable advantages of NFTs are:
Unlike exchange-traded fungible tokens, NFTs are bought or sold on special marketplaces. However, their value depends on their uniqueness.
Non-fungible tokens are enabled by blockchain technology. Therefore, users can be assured that their NFTs are genuine since it would be impossible to create counterfeits on a decentralized immutable ledger.
They preserve ownership rights
Again, this refers to the integration of NFTs on decentralized platforms where no owner can alter the data once committed.
Where to Create, Collect and Trade NFTs
There are multiple avenues today for creating and trading NFTs.
Rarible is a dApp built on the Ethereum blockchain that allows digital artists to issue assets that represent ownership of their digital work. These assets can be auctioned on the Rarible marketplace whereby people can bid and buy digital assets. Even though Rarible is one of the major marketplaces to buy and sell NFTs it’s still limited to Ethereum’s slow transaction speeds and high gas fees. As such, the network discourages buyers who are willing to purchase pieces since the gas fees to do so often exceed the price of the asset itself.
Burnt Finance is a fully decentralized auction protocol built on Solana and incubated by Injective. The team famously bought an original Banksy piece for $95,000 and Burnt Banksy, the founder, set it on fire, pioneering a revolutionary movement of transferring physical ownership to digital ownership through NFTs. The auction of the Banksy NFT reached top ranking positions on platforms such as OpenSea and was sold for $380,000 surpassing Beeple in terms of average sale price.
The project was built out of necessity to tackle the challenges that marketplaces face up to this day which are mainly high gas fees and low transaction times. Burnt Finance will bypass the typical restrictions posed by the Ethereum ecosystem and allow users to mint NFTs/synthetics in a few seconds while keeping negligible transaction fees.
Injective will be the first decentralized exchange protocol to launch NFT future contracts and enable users to take part in NFT prediction markets. Moreover, Injective is exploring the creation and trading of NFTs on the Injective chain with quick transaction times and zero gas fees given its unique layer-2 structure. NFTs and their immense use-cases are still being explored and Injective will provide its users the ability to capitalize on this opportunity pioneering in launching derivative markets on NFTs.
Injective is the first cross-chain protocol built for decentralized finance applications. On the Injective exchange, anyone can access, create, and trade unlimited DeFi markets such as futures and perpetuals. Developers can also build cross-chain Ethereum-compatible projects that are lightning fast and achieve instant transaction finality. Injective is backed by a prominent group of stakeholders including Binance, Pantera Capital and Mark Cuban.