2021 was the year of the crypto market. The poster child of the crypto world, bitcoin reached its all-time high of $67,000. The altcoin also rallied up taking the total value of the crypto market to a whopping $2 Trillion. As a result of growth, new avenues of earning became popular in the digital currency market. One of them was Crypto NFTs.
Crypto NFTs had a breakthrough in February 2021, when a 10-second video clip was sold for $6.6 million. Afterward, the demand for NFTs took off spurring the buying/selling of digital art pieces. NFT marketplaces like opensea.io had an enormous number of unique listings.
The Crypto NFT craze is not dying anytime soon. So let’s understand the basics of NFTs and their place in the crypto world.
What are Crypto NFTs?
NFTs are different from Bitcoin or other cryptocurrencies in the sense that they cannot be interchanged. One Bitcoin is equal in value to another bitcoin. However, one NFT is never equal to another NFT.
Let’s simplify it a little bit. Your friend borrows $5 from you. After a few days, he returns a different $5 bill to you. In this case, there will be no dispute between you because the $5 bill is a fungible asset. All $5 bills are equal in value. Now let’s take another example, your friend borrows your car and after some days he returns you another car of a different model. Now both of these are cars but 1 Model of the car is not interchangeable with the other. Both hold different values. So Car is an example of a Non-Fungible Asset.
Crypto NFTs Standardization:
Crypto NFTs or Non-Fungible tokens hold different values. They cannot be interchanged or replaced. Each NFT is Unique and one of its kind.
The Non Fungible tokens are tokenized under different standards. There are standards like ERC 721, ERC 998, and ERC 115.
Now, ERC stands for Ethereum Requests For Comments. Let’s simplify it. Ethereum is a decentralized blockchain. There is no central authority, person, or group controlling it. The blockchain is spread over millions of computers around the globe. All transactions on the network are recorded on the blockchain which is immutable i.e no one can change the information.
ERCs are the standards by which users of the ethereum blockchain suggest changes, improvements, or new features in the network. The number like 721, 998, and 115 are Unique IDs for each proposal.
ERC 721 is the most popular standard that guides the creation of NFTs on the Ethereum blockchain. It was introduced in 2018 by a project called Crypto Kitties. It allowed users to breed, buy and sell digital cats.
With ERC 721 Developers, can deploy tokens with different values from the same smart contract. You can then trade these tokens on the blockchain.
Why do NFTs have Value?
Now let’s tackle the question of why NFTs have value or what gives NFTs value. The value of an object depends on how much someone is willing to pay for it. Let’s go back to our dollar bill example. $5 bill is just a piece of paper. It has value because I, you, my neighbor, and the government believes in its value. So the value of an otherwise ordinary piece of paper comes from the people believing in its value.
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Likewise, NFTs are valuable because there are people out in the digital space willing to pay for them. And with time, the market for NFTs is growing. There are enough individuals interested in NFTs to make them special.
What makes NFTs special?
There are certain qualities that make NFTs Special.
The first one is ownership. Non-Fungible tokens represent ownership of a physical or virtual asset. The information on the creation of the token, its previous ownership, buying or selling history, all is saved on the blockchain. All participants of the blockchain can verify this information.
The second feature is Immutability. The information of NFTs is saved on a distributed ledger. It is nearly impossible for anyone to break into the network and change information. Thus, the proof of ownership remains secure.
The third feature is Interoperability. You can trade all NFTs in the same ecosystem. The standards are deployed on the same ethereum platform. So when a new NFT is created, it is viewable and easily tradeable across different NFT marketplaces.
The fourth feature is Non-Replaceability. NFTs are not replaceable. You cannot replace one for the other. They are unique and one of the kind.
Lastly, NFT markets have liquidity. There are hundreds of NFTs created and sold every day. So you are more likely to find a buyer for Non-Fungible Token because there is a lot of activity in the market.
What is the use of NFTs?
The NFT industry is in its infancy. There are limited uses of NFTs but enough to attract a sizeable market. These include:
- You can buy ownership of Art, Collectibles, Domains, and other digital stuff. If the thing that your purchase is in high demand then you can sell it and make a handsome profit.
- NFTs also have an appeal in the Gaming Industry. Gamers can sell the collectibles from Fortnite on the NFT marketplace and Create value for themselves.
- Digital art was previously available for free on the internet. Anyone could copy the digital piece of work without the permission of artists. With NFTs, artists can earn income for their work.
- It can also help put a stop to copyrights infringements.
- Money will go directly to creators. can represent official Documentation.
Redeemable for real-world assets.
- Depending on who owned an NFT can appreciate the value of an asset. For instance, if an NFT was owned by Elon Musk at some point then it will be a good investment for investors.
Crypto NFTs is one of the technology trends which we are taking with us in 2022. NFT market is volatile. There are many artistical pieces that are insanely overhyped. This makes the place risky because a lot of people will lose money on worthless digital arts. However, some NFT makers may come out on the other side with money in their hands. Therefore, it is important to wisely choose your collection of Non-Fungible Tokens (NFTs).