A dive into NFTs past, present, and future
In recent days a never-seen-before number of news about sales of NFTs have been circulating, and an unbelievable number of new assets are being created, unleashing what has been called the “NFT mania”.
In cases like this, people often tend to get overwhelmed by the general excitement and do not comprehend the underlying technology that triggered it.
For this reason, let’s first try to clear out what a non-fungible token is, and where it comes from.
A non-fungible-token is a special type of cryptographic asset that represents something unique.
This uniqueness is what makes NFTs different from other tokens which, on the contrary, can be equivalent and therefore interchangeable.
Since blockchain technology has entered the scene, digital scarcity has become a reality. Before NFTs, the cost of replicating an asset in the digital world was almost zero. Now, the existence of a “trustless” transaction network and digital rareness has changed the rules of the game.
A non-fungible token can be either purely digital or a virtual version of an asset in the real world. The key feature is the following: the impossibility of replication, arising from a unique digital signature, that can be used as a proof of authenticity.
Once a specific asset is recognized as authentic, it is possible to assign it to verifiable digital ownership.
If we think about coins, which essentially serve as means of exchange, their homogeneity is a fundamental feature of their use. On the contrary, a collector’s item is valued as such for its non-fungibility.
There are many frameworks for the creation and the exchange of NFTs, the most common of which is an ERC-721 token on the Ethereum blockchain.
The recent standardization of the issuance of NFTs is an advantage for users because assets can be transferred among different applications in a relatively easy way.
Like other tokens, each NFT is owned by a specific address, and it is subject to market price variations. An object is now precious and rare because of a shared belief. The more value people believe it has, the more its value grows. The idea of intrinsic value does not play a role.
This general excitement has been slowed down by some experts’ concerns. The creation and exchange of NFTs require high energy consumption resulting in huge environmental costs. Most transactions are processed through Ethereum which utilizes PoW for its consensus. PoW is very energy-intensive.
Ethereum 2.0, which will facilitate a change to PoS, is expected to vastly improve the situation.
NFTs currently have a lot of uses but have not reached their full potential yet. The most prominent ones right now include art, collectibles, sports cards, games, and land in virtual worlds.
Artworks are the most exploited use case of NFTs. Beeple, a prominent digital artist sold one of his pieces for 69.3 million dollars. Many others are hopping on this trend, since selling their art as NFTs removes the middleman, which means more profits for them. The smart contracts underlying the NFTs are designed for the creator to get royalties each time the work is resold on the market. Some marketplaces, like OpenSea, let you virtually issue your artwork and sell it.
Collectibles are also a big part of NFTs and are related to the uses of gaming. Collectibles called crypto kitties were the first popular use of NFTs. A more recent example is Terra Virtua, a platform that provides users with a VR experience where they can illustrate their collectibles.
Gaming as we saw is very related to collectibles. Many use cases in the gaming industry are possible, for example, the use of weapons as NFTs. Some of these like Axie Infinity let you create your pet, train it, and raise it. This use is like having a Tamagochi back in the 2000s.
Sport cards are an important part of this movement too, and one with big potential. An NFT featuring LeBron James sold for over $200,000. The sale was facilitated through NBA Top Shot, a project by Dapper labs and the NBA, which is a notable example of how big NFTs have become and could be.
One could say NFTs are the portal for ordinary people to join the crypto world. Any crypto enthusiast will agree that this is very important for a wider integration of cryptocurrencies in everyday life.
Now that we know what NFTs are, and what is happening in this new and exciting world, let’s discuss their future.
Art and collectibles are only the first of the many potential use cases of this new technology.
Crypto enthusiasts are already imagining a world where house ownership deeds, your clothes, and anything in between can be represented as an NFT in a blockchain.
But what would that mean and why is it an improvement over the status quo?
Let’s consider ownership deeds.
As of now selling a house is a bureaucratic nightmare with tons of paperwork that takes a huge amount of time.
That’s where NFTs come in.
They can be used as a digital representation of the ownership of a house and can be stored neatly and securely among other digital assets in your crypto wallet.
When the owner decides to sell the house they can just enter into an atomic contract with the counterparty, which upon execution will transfer the funds to the seller and the deed to the buyer. If the government recognizes this transaction as legally binding, that is all it will take for the sale to be completed. Pretty easy right?
Not so fast.
As I already mentioned, this can only happen if the government accepts the transaction as legally binding. And the trust, or the framework, for that to happen is not there yet.
The current system, in which most NFT transactions are conducted, is completely decentralized, meaning that the government, or anyone for that matter, has no control over it. As history has shown, governments are not ones to give up control so easily. Whether a solution that satisfies all parties can be found is to be seen.
Another, more fun way of using NFTs is for representing high-end or limited edition clothing and accessories. This can be done with NFTs as a complement of the real object or as the object itself.
What will I do with a digital T-shirt, you ask?
Well, apart from the ability to verify the authenticity of said T-shirt, there’s so much more.
Our real-life is merging with our internet life as we spend more and more time each day online. As a result video game clothes, or skins, are taking the world by storm, with gaming giants like Fortnite and Riot leading the charge. It only makes sense that fashion companies follow suit.
Wouldn’t it be cool if your online character could rock the same outfits you do? Nike certainly seems to think so, as it has patented a technology that will pair real sneakers with their NFT counterparts. You will then be able to breed them on chain and order the physical version of the offspring. That’s what I call getting the best of both worlds.
We here at BSBCA are very excited about new applications coming and are looking forward to sharing them with you.
by Alessia Carreti, Charles Gibson, Moris Fais