What is an NFT ?
NFT is the word on Crypto Street. The gospel everybody wants to hear. NFT has won over many people in a short amount of time, the phenomenon to beat that is maybe CR7 coming back home to Manchester United. Now, the NFT market has the attention of luxury consumers, artists, gamers, and even digital cat enthusiasts in the form of CryptoKitties. Nifties, as NFTs are fondly called in the blockchain world, represent a digital asset that is scarce, indivisible, and unique in its properties.
The use cases for NFTs are growing immensely from being used in gaming, art, to even luxury. It shows that the blockchain network functionality is extending past just cryptocurrency and decentralized finance. We are moving from crypto and crypto exchanges, Defi and Defi platforms to NFT and NFT platforms/marketplaces. Better still NFT itself is evolving into sectors it has not touched much before like the luxury sector with platforms like Exclusible bringing luxury NFTs to life.
So, what is an NFT exactly?
NFT is just the short form of Non-Fungible Token and unlike it’s fungible counterpart such as freely interchangeable crypto coins, NFTs are not interchangeable.
For example, a fungible token like Bitcoin is interchangeable for something of similar value. One Bitcoin can be exchanged for Ethereum (another fungible token) of a similar value (that is ETH equivalent to the value of 1 BTC). That is not the case for NFT as it’s unique properties mean one NFT cannot be exchanged for another, as they cannot be of similar value. You can liken an NFT to a traditional asset like the painting The Starry Night, which is unique. You can buy a print of it or take it’s photo; however, there will always be one original version.
That is why an NFT is a one-of-kind digital asset that is tradable just like any other asset be it physical or digital. However, an NFT has no tangible form of it’s own, as it is a digital token that represents the authentication of ownership of either digital or physical assets.
That being said, NFTs can represent an artwork, song, image or photo, luxury items or collectibles. The NFT is the unique data that represents all these items on the blockchain. Therefore, by purchasing NFTs, you are basically purchasing the digital certificate of ownership to this item in the form of a token that is transferable between digital wallets that support NFT tokens. Since most NFT tokens are based on the Ethereum network, you will find most digital wallets supportive of an NFT token.
How do NFTs work?
Now as we have hinted earlier, traditional assets like paintings, artworks, etc. are considered valuable because of their uniqueness. That is not the case with most digital files, which can be duplicated endlessly and easily. However, that changes with the introduction of NFTs. The technology behind each NFT ensures the tokenization of digital assets to establish a digital authenticity that is tradable in the crypto market.
Just like cryptocurrency, NFT data records are stored on the blockchain which is maintained by several computer nodes globally to ensure these data are secured. A smart contract is incorporated into an NFT to give the creator a percentage of future sales. The smart contract stores the exclusive and unique data that gives the NFT its distinct features.
One of the distinct features of NFT is indivisibility, which means an NFT token cannot be subdivided into smaller units like those that we have in cryptocurrencies like BTC. For BTC, you can send smaller units called Satoshi to another person. However, that is not the case with NFT.
The unique role of NFT in the crypto space means it will play a significant role in the radical change coming to digital transformation in the next blockchain era because huge companies, especially luxury brands slowly shift and adapt to the idea of blockchain integration into their business operations. The way NFT is able to interact with so many things from Augmented Reality, Virtual Reality, to the Metaverse in general represents a revolutionary change in the digital world.
NFT token standards
Before looking at the use cases of NFTs to see how NFT interacts with the digital world, let’s first dive into the token standards. Most NFT tokens are based on the Ethereum blockchain. So we have different NFT token standards on Ethereum with the most popular one being ERC-721. There are also NFT token standards on other blockchains aside from Ethereum like Flow and Tezos blockchain.
ERC-721 token standard
Unlike the ERC-20 standard that is used for cryptocurrencies based on the Ethereum chain, the ERC-721 standard is different as it represents a single unique asset that is not interchangeable. Every ERC-721 NFT token stores data in their customized smart contracts. These smart contracts have all the data regarding ownership and details relating to the identity of a specific digital asset.
ERC-721 offers tokenization of assets that are indivisible and provides a form of the authenticity of ownership.
ERC-998 token standard
What the ERC-998 does is take it a step further from the ERC-721 token, although it can be seen as an extension of the ERC-721. This “extension”, grants the ability to own other NFTs as well as ERC-20 tokens. Any NFT based on ERC-998 will implement ERC-721 automatically, hence, ERC-998 tokens can be considered a portfolio of digital assets due to their ability to own other assets.
Another Ethereum-based NFT token standard is the ERC-1155 standard. This standard broadens the applicable use cases of NFT tokens. Although the ERC-721 is fit for minting digital assets that are transferable between digital wallets. Nevertheless, a collection of ERC-721 NFT tokens is usually slow and insufficient.
For example, choosing a collection of ERC-721 NFT tokens for tradable game collectibles like skins and weapons for a certain game character during gameplay could prove insufficient for the game. This is where the ERC-1155 comes in handy, which is why it is dubbed the multi-token standard of the next generation. Remarkably, this token standard can be used for NFTs and fungible tokens.
Tezos FA2 Standard
Ethereum is not the only blockchain where you can mint NFTs. Another blockchain that offers NFT is Tezos and its token standard is the FA2 standard- a unified token contract, which is also referred to as TZIP-12. The token standard supports several token types like NFT, fungible, multi-asset contracts, and non-transferable token types.
The Flow blockchain smart contracts are written using Cadence, which is what Solidity is to Ethereum. The smart contracts are upgradeable, which means they are first deployed in a beta state then gradually updated until the creators are fully satisfied after which it becomes immutable.
Flow came about in the effort to solve the problem of insufficiency of the ERC-721 token standard. The blockchain was developed by Dapper Labs the creator of CryptoKitties that was initially an ERC-721 token. The popularity of the tokens made the Ethereum network clog and that led to the development of the Flow NFT standard.
Use Cases of Non-Fungible Token
The introduction of NFT has seen many speculations about how the NFT token will be used in the blockchain space and digital world in general. As we know, NFT allows owners to display their certificate of ownership of a particular digital asset. NFT in a way can protect the owners holding a particular asset to ensure exclusiveness similar to what is offered on Exclusible’s luxury NFT platform. As time progresses you can expect more use cases to spring up for NFTs.
As of now, several ways of utilizing NFTs exist including artworks, fashion, gaming, collectible, luxury NFT, etc. The way people interact with NFT is also evolving; we are now seeing NFT merging with the metaverse, NFT being used with Augmented Reality and Virtual Reality. Let’s look at some of the use cases of NFT tokens.
Arts is one of the sectors that has seriously benefited from NFT and it is among the notable use cases of NFT. There is no one familiar with NFT art that would not have heard of Beeple’s $69M NFT art auctioned through Christie. It was news that sent shocking waves throughout the art world and blockchain industry. It helped spread the gospel of NFT far and wide and had more people clamoring for NFT art as well as more artists joining NFT art. Everybody wants a piece of the NFT cake.
NFT art infuses a mixture of technology and creativity to create a notable use case of NFT. The ability to see the entire history of ownership of artwork with the prices when it was bought is something collectors will certainly find spectacular.
Fashion is something that speaks to the present generation of Gen Z and millennials. When you combine that with NFT, you have something that brands can use to provide a thrilling experience that millennials and Gen Z often seek when making purchases. As luxury brands have discovered fashion NFTs are one good way to connect with millennials and Gen Z.
The seamless merge of blockchain and the fashion world gives the assurance of benefits to every participant along the supply chain in the fashion world. Throw in NFT with blockchain, customers can now verify ownership data of fashion accessories and items bought to lessen the instances of falling for counterfeit products.
An NFT token can give consumers clear details of how and where their asset was created and the history of ownership of the NFT fashion item they possess.
Luxury is one segment where NFT is starting to get more pronounced. Luxury brands are turning to NFTs to connect with their clients. Imagine being able to interact with luxury NFTs in a metaverse just as you interact with NFT art, NFT fashion, or collectibles. The best part is luxury brands can now introduce luxury NFTs even without the need to call for physical events. Why call for a physical event in an increasingly digital world when you can simply connect to clients through mobile applications in the form of augmented reality and virtual reality events?
There is a new kind of market now patronized by newer generations like millennials and Gen Z and that demands a new approach if luxury NFTs are going to thrive. As proclaimed by Exclusible, the future of luxury is NFT. As such, luxury brands and luxury collectors must find a way to grow with it.
Another popular use case of NFT is digital collectibles. You must have heard of collectibles like CryptoKitties, CryptoPunks, and the recent Exclusible alphabet collectibles that could even win you a chance to go to space. Collectibles were initially what introduced many people to NFT. For example, CryptoKitties became so popular at a point that it got the Ethereum blockchain clogged.
Now we have more collectibles springing up here and there even in the area of sports like NBA top shots for example. This leads us to the last use case we want to discuss–sports.
Sport NFTs are becoming a thing with asset tokenization of sporting moments, athletes and sports stars, and even game tickets. There are platforms like Sorare that focus on sport NFT where players are tokenized and their performance in real life is reflected on their tokens to give the holders points.
NFT can be used to fight counterfeit ticketing and merchandise, which is one of the key issues facing sports. The uniqueness of NFT means each ticket or merchandise can be traced to the exact owner.
The gospel of NFT is clear. In this chapter, the verses wax strong lyrically about the applications and usefulness of the NFT token as it starts to gain more ground across several sectors. So many use cases now with the gaming sector, collectibles, and recently NFT art driving NFT’s popularity. Now, luxury NFT is also gaining ground with a platform like Exclusible aiming to be the next big thing in NFTs and deliver the future of luxury.