NFTs (or non-fungible tokens) have grown in interest as the quality of projects has significantly increased over the past year, covering a wide range of industries. They are creating new opportunities for creators and unlocking new revenue streams while enabling identifiable digital property rights through immutable blockchain technology. This post is an introduction to NFTs, starting with a definition.
What are NFTs
Non-fungible tokens (NFTs) are unique digital assets whose ownership is tracked on a blockchain, typically Ethereum. Some examples of NFTs include collectibles, in-game items, digital art and redeemable physical items like clothing.
An item is fungible if it is interchangeable and indistinguishable from another. Currency is the best example as a bill of the same value can be replaced with another without losing value. A $5 bill in one wallet will be equal to $5 in another.
So, an item is non-fungible if it is irreplaceable. A limited-edition sports card with one player will have unique characteristics and will be valued differently from another player. Even when two cards have the same player on them, factors such as year of production or preservation will make the cards unique.
Why do NFTs matter?
Digital ownership is not a new phenomenon as domain names, in-game items, and social media handles predate NFTs. But, the ownership of these non-fungible items relied on a trusted third party.
For example, a domain host could get hacked, resulting in a bad actor transferring your domain to someone else without your permission. Or, you could lose access to your gaming account if you bought in-game items from an outside marketplace if the game developer found out!
The ownership of these digital items belonged to someone else and not you. NFTs eliminate this as the ownership of the NFT is yours. Anyone can independently verify NFTs, and a third party cannot revoke your access to the NFT. That is why they matter.
Below is a table comparing an NFT internet with the current internet from the Ethereum foundation:
NFTs have the additional benefit of unlocking new revenue streams for creatives as they are encouraged by NFT platforms to set a royalty, usually between 10-20%. So, when an NFT sells, the creative can receive a percentage of that sale and subsequent ones forever. That means the creative will always have a stake in their work, benefiting from their future success.
By selling NFTs, early supporters of that creative can also benefit as they get to fund their favourite creatives. When that creative becomes successful, they can then sell their NFTs at a profit. In an a16z article titled ‘1,000 True Fans? Try 100’ Li Jin writes about how a small but true audience of fans can support a creative better than a wider but less attached audience. That is what NFTs can take to the next level.
Anyone can download an image, share a meme, or take a picture of the Mona Lisa, but there will only be one real version, and that’s where NFTs gain their value. When an NFT is purchased, you’re not buying the viewable image on the marketplace but the code that references a media file on the blockchain, as this article explains.
How do NFTs work?
The standard Ethereum token is an ERC-20 that allows for fungible and indistinguishable tokens. But NFTs are different from standard tokens as they need to be unique while remaining easily transferable. That is why there are two standards on Ethereum specifically for NFTs.
The first is ERC-721 that lets the creation of distinguishable tokens with unique properties. Each ERC-721 is unique and cannot be replaced with another, making them perfect for collectibles or ticketing.
The second is ERC-1155 that supports both fungible and non-fungible tokens. Gaming is a sector where this is needed. For example, an MMORPG may need to exchange fungible items such as in-game gold with non-fungible items like rare drops.
How can you use NFTs with Argent?
By having an Argent wallet you can securely store and send any ERC-721 and ERC-1155 NFTs. Argent is compatible with any NFT marketplace that you can use with WalletConnect. Some of the most popular marketplaces are Opensea, Rarible and Zora. If you'd like to know more about this, we have a guide on this here.
- How NFTs work by the Ethereum Foundation
- A beginners guide to NFTs by Linda Xie that expands on art, gaming, social tokens and the future of NFTs
- The NFT Bible by OpenSea
- Jesse Walden -- a primer on NFTs
- NFTs have the potential to crack royalties and give more value to artists by James Beck
- The Blockchain Gaming World Podcast
- Power to the person, by Not Boring
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