NFT technology explained (and why everyone is talking about it)

25 November 2021

Veronika Nedashkovskaya

Content Manager

In recent months, the news has been increasingly talking about the non-fungible token, adding that it can change the way people think about digital asset ownership. Usually, the money spent on virtual objects is fabulous. For example, the first  NFT sculpture, “Human One”, created by digital artist Mike Winkelmann (also known as Beeple), was recently sold in New York. Its cost was $29 million! And it is far from the possible limit.

The world of art and the gaming industry are changing right before our eyes. Today we will talk about these changes: where did the technology come from? How does it work? And, most importantly, why are people willing to invest huge amounts of money in digital assets?

1. NFT technology: briefly about the main

The concept of NFT came to us from the world of cryptocurrency. NFT refers to cryptocurrency tokens, although it is quite different from them. First, let's understand the basics: what a token is and how it is related to the blockchain. Knowing these basic terms, you will understand how technology works.

In simple terms, a token is a digital coin. If you sell a coin and rebuy it, you will receive a token of the same value. It is like stocks on the stock exchange. A token is each record in a blockchain, a distributed database. All records are equal and interchangeable here. This is how cryptocurrency works: one bitcoin is easily replaced by another, which does not entail any changes.

With NFT technology, everything is different: tokens cannot be replaced, swapped, or split. Each copy is unique and has the same value. As in the case of cryptocurrency, such tokens are created on the blockchain, which guarantees non-fungibility. They are stored in a digital wallet with a unique address and cannot be copied and moved unless the issuer has given consent to do it. 

We understand that it looks complicated, but we won’t delve deeply into the technology. This brief description is enough to answer the main question: why is NFT needed? Its ability to be non-fungible is perfect for securing rights to any one-of-a-kind item: a work of art, an artifact in a game, a piece of real estate. By buying one of them, you get a certificate that confirms your ownership.

Having spread relatively recently, the technology has already earned the title of a new type of virtual asset and is now used in various industries. 

2. NFT as a new kind of virtual assets

Experiments with NFT began 7-8 years ago with the Bitcoin scripting language. And in 2015, the first full-fledged NFT (Etheria project) was launched. It is noteworthy that the Ethereum blockchain was launched 3 months before. It became the foundation for the creation of non-fungible token smart contracts (in 2017). We constantly follow the trends in cryptocurrency tokens, so we were not even surprised that the NFT market became popular so quickly: in 2 years (2018-2020), it has increased almost 10 times. We believe that there was every reason for this in our digital age.

The Rocketech team did not omit such global changes. We decided to predict which industries the new trend will capture and what will be the result. The first prediction was hard to go wrong: NFT is firmly entrenched in digital art. However, this area is not the only one that has felt its influence. Let's take a look at 3 directions with examples to make it all clear.

NFT is used in the following areas:

  • Art

Have you ever wondered how to prove the authenticity of a digital object that does not have physical storage? How to confirm ownership? NFT helps address these issues.

One of the highlights of 2021 was the sale of the Everydays collage by the artist under the nickname Beeple (mentioned before). The work initially did not have a physical embodiment but was presented in digital format. The author put it up for auction as a non-fungible token. The artist set a modest starting price ($100) but received... $69 million! Impressive, right? Without exaggeration, we can say that it made a splash: for the auction house, art market participants, and, of course, the author.

This year, a physical piece of art has been transformed into a digital object for the first time. The Injective Protocol company performed this: it bought from a New York gallery a painting "Morons (White)" (more precisely, one of 500 prints) by British street artist Banksy. The original was enchantingly burned live, but before that, it was converted into a non-fungible token. 

This technology also touched the art of music. DJ 3LAU became a pioneer in this area, earning $11.6 million from selling a music album using tokens. The platform where the auction was held called this event historical on Twitter. And it's hard to disagree with them. There are many more examples of the use of NFTs in art. Most of them you must have heard about in the news. In the meantime, let's move on to another, no less exciting direction.

  • Games

Games and cryptocurrency tokens are also closely related. Moreover, users invest millions of dollars in game items. Why? For the same reason: everyone seeks to take possession of an exclusive art asset that will belong to them only. For example, in August 2021, an impressive amount of transactions was recorded: over $820 million. Unique characters are in the biggest demand.

The more non-standard the characteristics, the better because it increases the character’s value. It is unnecessary to have any special skills here, as is the case with visual or musical art. It is enough to create a character from scratch (or buy), develop it, and sell it at a higher price. It makes non-fungible tokens an easy and fun way to make money. Here are some examples of such games. Who knows, you might want to try it too?

Popular NFT Games:

  • Axie Infinity. Breeding, collecting and exchanging NFT animals (they are called axi) with unusual genetics, the price of which depends on the rarity and uniqueness of their characteristics.
  • Waves Ducks. Breeding ducks! For example, making it similar to Elon Musk — why not? It's all about growing EGGs to earn even more EGGs (tokens).
  • Alien Worlds. Discovering new worlds, buying lands and other NFT items, and completing quests in a highly competitive environment. Gamers do it to get TLM (in-game tokens).

And, of course, we must mention CryptoKitties. Back in 2019, this online game processed as many transactions as any DApp could not. In May 2020, there were about a hundred thousand cat owners! As you can see, the NFT gaming industry keeps up with the crypto art. What about real estate?

  • Real Estate

Tokens have reached real estate as well. It primarily concerns virtual objects. So, the digital Mars House from the artist Kim was sold for good money, over 500 thousand dollars! More precisely, for a cryptocurrency equivalent to this amount. A happy customer received 3D files for their Metaverse. Most likely, you have a question: what is the point of buying a property that does not exist?

The Metaverse reproduces our universe in digital form and allows any fantasy to come true. It gives a sense of presence in real-time and makes social interaction easier. The space does not depend on the actions of the developers. The users can create events, build real estate, add objects, and pay for purchases with crypto. The goal is to develop a new economy. According to our estimates, the NFT economy may grow into a real-world economy in the future. 

Is it actually profitable? So, it is considered a good investment. It is expected that the demand for virtual lands will only grow, so it makes sense to purchase them as soon as possible to monetize in the future. Some investors prefer to keep their savings in crypto assets. However, non-fungible tokens are not limited to virtuality. 

Tokenization helps to simplify the purchase and sale of real estate as well as transfer property rights. Forbes experts advise you to prepare legally and issue a non-fungible token that contains property data (from documents and reports to photos and videos). Everything looks like this: the owner of the NFT is the owner of the property. Further, the token can be put up at the auction, the winner of which pays for the object and prepares the documents. So far, this process is imperfect, but all vulnerabilities promise to be eliminated in the future.

NFT trading: how to buy or sell digital assets?

If you want to become the legal owner of a unique digital object, you first need to decide on the site. There are 2 categories of places to buy tokens:

  • Marketplaces

There are many marketplaces available: Nifty Gateway, Rarible, or Mintable, but the most famous is OpenSea. 

To purchase NFTs on OpenSea, you need a digital wallet like the Meta Mask extension to connect to Dapps via a web browser and use Ethereum-integrated sites. When creating a wallet, you must: set a password and a secret phrase and buy or enter a cryptocurrency into the account. Done, you can start shopping! 

An important caveat: some tokens are available for “buy now”, and some require bids (such cards contain information about trading). All purchased tokens can be easily sold on the marketplace. 

  • Niche sites

Specific tokens are sold on thematic resources: NBA Top Shot for sports videos, Valuables for tweets, etc. Imagine making money on Twitter posts too! This is what the founder of this social network did when he received $2.9 million for his first tweet.

Games-related sites such as CryptoKitties are popular. Here it is enough to create an account and deal with the wallet (e.g., MetaMask) to access the kitten's catalog. All purchased kittens can be sold here.

When buying on any of the sites, pay attention to the commission. We also recommend that you take care of security in advance when conducting transactions. You can protect yourself by setting up two-factor authorization via SMS or mail. And, of course, select verified objects only.

To create and sell from scratch, you need the same tools: a wallet, marketplace, and content. A collection with a description appears on the site with a media file written into a token (picture, 3D model, video, sound). The name and characteristics should be indicated as well. After a couple of days of verification, you can sell it. Cost is another matter as most NFTs sell for less than $200.

The boundaries between the virtual and real world are gradually blurring. Artists, businessmen, collectors, gamers, and even fast-food chains (like Taco Bell) are actively involved in NFT technology. Owning a non-fungible object is essential in terms of emotional experience and investment in the future. Of course, there are nuances. For example, token ownership is not a guarantee of full rights to an item. For example, the Nyan Cat video, sold for almost $590,000, is available for viewing and downloading online. However, not the availability on the Internet, but the exclusivity makes the item valuable.

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