A Beginner's Guide to NFTs (Non-fungible Tokens)

Non-fungible tokens (NFTs) have applications far exceeding their current popular uses—that is, overpriced digital artwork. The real potential of NFT is far beyond the reach of Christie’s and CryptoPunks, and it’s even surprising that mainstream society knows what we call NFT 1.0.

Before discussing different versions of NFT, let's understand what they are.

Key Points

• Non-Funified Tokens (NFTs) are unique digital assets with a potential that goes far beyond expensive digital art transactions. They are unique tokens that can be used to represent ownership of various digital items, and their value depends on the buyer's subjective perception.
• NFT operates based on the principles of blockchain technology and has two key attributes: proven uniqueness and proven ownership. These properties are maintained and protected by the blockchain, ensuring that only one user can have a specific NFT at any given time.
• The development of NFT has enabled it to gain features and utility (NFT 2.0), and even includes execution functions such as ownership and permissions (NFT 3.0). This makes them interactive and able to have other NFTs, which can significantly enhance the user experience in areas such as gaming.

Definition of non-fungible tokens

The concept of alternative can only be applied to one set of items. This set of items is replaceable when each member of the group is exactly the same as the other members without any individual differences. This means that each member of the group can trade with another member at any time without any friction.

Some of the alternative tokens include fiat currencies, Bitcoin (BTC), Ethereum (ETH), and Polkadot (DOT). BTC is considered an alternative token because every BTC is created equally. Furthermore, none of the BTC is different from the other (some exceptions are not discussed for the time being). This is true for all alternative tokens in the crypto space. For banknotes, the situation is slightly different because we have bills in various denominations. So all the $20 bills are completely substitutable to each other, but if you want to exchange them for, say, $1 bills, we need more $1 bills to reach $20. Therefore, you can say that banknotes are semi-replaceable. But once you convert the banknotes into digital dollars, you will find that all dollars are the same.

Note: Substitutability is a scope; it is subjective. One dollar is the same as another for shop owners, but it may not be the case for the FBI who is looking for a specific dollar bill with a specific serial number.

Now, if substitutability is a characteristic of something interchangeable with other members of its group, then non-substitutability is its ability to have identity and uniqueness. That's all. Therefore, as long as only one copy is minted (created) when it is added to the blockchain, the non-fungible token is a unique token itself. So when you hear about NFT collections today, it usually means that they are collections of artworks made up of unique individuals.

Unique Kanaria Bird

If that's all about NFTs, then what's the big deal, why are some NFTs outrageously expensive?

NFT price

Some paintings are worth millions of dollars, while others are worth less than one penny. Why? Many factors work together, but the most important point is: We are humans—social creatures—under subjective cognitive control.

Some NFTs are outrageously expensive because of the stories behind them, whether they are personal experiences, fiction or being sold. Sometimes, a thing is valuable because of who made it, when it was made, how people think of it, or the situation surrounding its early life. It is beyond the scope of this article to define all reasons.

It is enough to know that they are expensive because people are willing to pay such high prices for them based on their subjective perceptions, even if this perception is strongly influenced by the world around them, especially the media. Some buy because of reputation, while others buy because of speculation.

Whatever the reason for the overpriced price is, it has nothing to do with the revolutionary potential of NFTs, so we can give up on this discussion and focus on more information about how NFTs work and why they are game changers.

How to work in NFT

There are two main attributes that make NFT a game-changing key:

Proveable uniqueness
Proven ownership

These two attributes are due to blockchain technology. Another name for blockchain is distributed ledger technology, meaning that blockchain is just a spreadsheet maintained by a global computer network. In this network, no computer is an authoritative organization. New transactions are recorded only when most nodes on the network reach a consensus. To understand how this relates to NFT, imagine a spreadsheet with the following information:

AttributeValueColor#00ff00 ID 00001 Skill Sword, Bow, Nunchakus Name Green SamuraiAttributeValueColor#ff0000 ID 00002 Skill boxing name Red SamuraiAttributeValueColor#0000ff ID 00003 Skill small gun name Blue Samurai are three small tables, each of which describes a warrior with a different name, color and ability. Each samurai has its own unique ID. There can only be one #00001 samurai, only one #00002 samurai, and so on.

Picture Source Now imagine if you could have a samurai. Let's add a new field to each table.

Attribute Value Color#00ff00 ID 00001 Owner 0x0 Skill Sword, Bow, Nunchakus Name Green Samurai Attribute Value Color#ff0000 ID 00002 Owner 0x0 Skill boxing name Red Samurai Attribute Value Color#0000ff ID 00003 Owner 0x0 Skill Small gun name Blue Samurai 0x0 is a "empty address", which means that none of these Samurai belongs to anyone. If we change the owner to an address, for example 0x4da2e85d64bece663ccab06e89b970b6b077f22f, then the person who controls that address will become the owner of the warrior:

Attribute Value Color #00ff00 ID 00001 Owner 0x4da2e85d64bece663ccab06e89b970b6b077f22f Skill Sword, bow, nunchaku Name Green Samurai User 0x4da2e85d64b ece663ccab06e89b970b6b077f22f now owns Samurai 00001. Because this is written on the blockchain, all nodes will ensure:

• Only one samurai with ID 00001 exists
• Only one person has a specific warrior

Owners can also transfer samurai:

<code>SamuraiContract.methods.transfer("0x2489efb207809c237c85c202d0fa78c8b236709c", 00001)</code>

The person who calls this function in the blockchain will tell the "Samurai" smart contract (the blockchain program that runs the samurai logic): "Transfer my 00001 samurai to address 0x2489efb207809c237c85c202d0fa78c8b236709c". If the person who initiated the transfer is not the owner of 00001, the transaction will simply fail and is protected by the blockchain.

This is actually what happens when building and deploying NFTs behind the scenes. In a large spreadsheet there are a bunch of small tables that only the owner of a specific cell can change the values ​​of those specific cells, and the blockchain ensures that everyone follows the rules and cannot do anything that doesn't match that particular spreadsheet !

But NFT offers much more than proven ownership and proven uniqueness.

Lego Artistic: NFT design of any complexity

NFT 1.0 is digital art on the blockchain that can be appreciated and traded. That's all. This is the era when CryptoPunks, CryptoKitties and so on are emerging.

Then there is NFT 2.0, where digital art on the blockchain gains features and utility. This means it can do more than just appreciation. The characteristics of NFTs are associated with their benefits. However, not all practical NFTs have characteristics. Some NFTs have only one feature, and that is their utility (so it seems redundant to say that they have characteristics). For example, there is an NFT that allows you to get an unsecured loan from using it in a whitelisted DeFi application. Other NFTs allow you to get certain discounts on certain agreements. For example, an NFT could be made to allow holders to receive a 100% discount on gas fees on Ethereum by having the application refund the user.

While NFT 2.0 is still implemented among some of the leaders in the crypto space, NFT 3.0 is here. In this new iteration, digital art on blockchain now has executive functions such as ownership and permissions. This makes the originally static NFTs suddenly active, making them interactive - so that they can send actions, send items, equip them, change states, and more. This means that NFTs can have other NFTs. But that's more than just: NFTs can have other NFTs, and they can also modify the appearance of the parent NFTs based on the existence and type of the child NFTs. This seems unrealistic to you, so let's explain it with a game use case.

Applying possession and equipment features to the game has a profound impact as it enables gamers to own all of their in-game items as NFTs. For example, you have a game character who has a list of items—such as weapons, potions, maps, etc. Assuming each item on this list is an NFT, including our character, we can use the NFT 3.0 feature to equip this character with a sword NFT. In this way, NFTs interact with each other, and the experience of players (now owning items in this digital world) is more immersive than ever. Especially because they are now free to trade with other players or sell in-game items on the open market.

The leader in the NFT 3.0 phase is RMRK, a Kusama native NFT project that recently launched a new open source networking platform for running unique ICOs using dynamic NFTs called Kanaria. It is currently running the first such ICO (Initial Collection Distribution) campaign using dynamic NFTs that initially appear as eggs.

With a new developed feature, users can send emojis to eggs. The most fascinating part now is that the appearance of hatched birds may be affected by the emojis sent to them. So if an egg receives over 500?, this may result in it hatching with a sword – this will appear in the form of a sub-NFT (NFT owned by birds), which can also be on the open market Make a transaction.

Going further, RMRK is currently developing a version 2.0 of the standard, which will allow: NFT to be democratically governed by multiple users; NFT has multiple resources at the same time (cast an NFT book, which can have both its audio and PDFs at the same time; version, and high resolution cover); NFTs that can react to emojis (if you send 50 emojis to the moon drawing, you can draw the moon base on it); and so on.

Conclusion

Given the large number of possible use cases, it is unimaginable that NFTs will gradually fade out of people's horizons.

Most likely, many use cases will be tried, some will fail, but some will remain, and these will have a significant impact on our daily lives. There are already discussions about creating public goods NFTs, as well as NFTs that help users, artists or organizations donate some of their income to social causes. Isn't this amazing?

We have never had, shared and trusted so easily in human history. Through the evolution of Art Lego, the future of NFT is infinite. Soon, a system of any complexity built on programmable NFT capabilities will be available for any blockchain, and what you can do with these primitives will be limited only by your imagination.

FAQs (FAQ) on Non-Fungible Tokens (NFTs)

How does NFT work in the real world?

NFT operates based on blockchain technology, similar to cryptocurrencies such as Bitcoin and Ethereum. However, unlike cryptocurrencies, each NFT is unique and cannot be exchanged in an equivalent way. This uniqueness gives NFT its value. They are often used to represent ownership of unique items or content, such as digital art, music, and even tweets. When you purchase NFT, you will gain ownership of that unique data fragment on the blockchain.

What is the significance of NFT in the art world?

NFT has revolutionized the art world by providing artists with a new platform to sell their works. They allow artists to tokenize their work as digital assets that can then be bought, sold or traded on the blockchain. This opens up a new source of income for artists, especially those digital artists who previously struggled to monetize their works. In addition, NFTs provide proof of ownership, which helps prevent forgery and unauthorized replication.

How do I create my own NFT?

Creating NFT involves minting digital assets on the blockchain. This process varies depending on the platform you choose, but usually you need to upload your digital files (artwork, music, etc.), provide detailed information about the work, and pay a cryptocurrency-denominated fee to mint the NFT. After NFT is cast, it can be marketed in various NFT markets.

Is NFT a good investment?

NFTs can be very volatile in value and like any investment, they are risky. Some NFTs have sold millions of dollars, but many others have a trivial value. Be sure to do research and understand the market before investing in NFTs. Remember that the value of NFT is subjective and depends on how much others are willing to pay for it.

Can NFT be copied?

While digital content related to NFT can be copied, NFT itself cannot. NFTs contain information on the blockchain that proves its authenticity and ownership, which cannot be copied. So while someone might copy digital art related to NFT, they won’t have ownership of NFT or artwork.

What are the environmental problems related to NFT?

NFTs have been criticized for their environmental impacts because they consume a lot of energy. This is because they are built on a blockchain network using a “proof of work” system, which requires complex computations that consume a lot of power. However, some NFT platforms are turning to more energy-efficient systems to mitigate this problem.

How do I sell my NFT?

To sell NFTs, you need to list them in the NFT market. This process varies from platform to platform, but usually you need to set a price for your NFT, pay for a listing fee, and then wait for the buyer. Once a buyer purchases your NFT, ownership will be transferred to their account on the blockchain.

Will I lose my NFT?

Yes, if you lose access to the digital wallet that stores the NFT, you may lose your NFT. Be sure to keep your digital wallet safe and back up your wallet’s private key in a secure place.

What is the future of NFT?

The future of NFTs remains uncertain, but many experts believe they may play an important role in the digital economy. They can be used for a variety of purposes, from tokenizing real estate to creating unique digital identities. However, the NFT market remains relatively new and may be affected by regulatory changes in the future.

Is NFT legal?

Yes, NFTs are legal, but they are subject to laws and regulations of each country. Some countries may have restrictions on the use of cryptocurrencies, which may affect the purchase and sale of NFTs. Be sure to understand the legal implications of buying, selling, or creating an NFT in your country.

The above is the detailed content of A Beginner's Guide to NFTs (Non-fungible Tokens). For more information, please follow other related articles on the PHP Chinese website!