NFT — Where Arts meet Cryptography
What is NFT?
An NFT is a token that represents real-world digital assets like art, music, in-game items, and videos. In most NFT there is an address that points to where the asset is stored. NFT’s can be bought and sold with cryptocurrency. They are often created with some of the most popular crypto-currencies. So for those who have traded cryptos before, they will find NFT’s work very similarly. However, what distinguishes NFT’s from regular cryptocurrencies is their non-fungibility. It means NFT’s are generally one of a kind, or at least one of a very limited run, and have unique identifying codes. They have an address built inside the smart contract that points to the digital assets which is usually unique. Thus, rarity and uniqueness are what make NFT very valuable. On the other hand, bitcoins and ethereum are known to be fungible, Your bitcoin is no different from mine. The same applies to currencies, stocks, bonds, and commodities. NFT, therefore, is the perfect tool to tokenize collectibles and artworks.
Underlying Technology
While NFT’s can be written in many blockchains, the majority is written in Ethereum given the popularity of the currency. Most Ethereum based ICO/IDO’s is written in ERC-20. One of the standards in Ethereum called ERC-721 supports the creation of NFT. The ERC-721 token is unique. It can have a different value than another token from the same smart contract, maybe due to its age, rarity, or some unique embedded address.
With the popularity of NFT’s other blockchains have joined the bandwagons. Currently, other blockchains that support NFT’s include Binance Smart Chain. Flow, Solana, and WAX.
From Crytokitties to Beeple
NFT is not new. One of the early applications of NFT is in fact a game that most people may have forgotten about — Crytpokitties.
The virtual cats are breedable and carry a unique number. There are a total of 12 ‘cattributes’ for any cat, including pattern, mouth shape, fur, eye shape, base color, accent color, highlight color, eye color, and optional wild, environment, ‘purrstige’, and ‘secret’. Players can purchase, collect, breed, and sell virtual cats. The game was launched in Dec 2017 and is one of the earliest attempts to utilize blockchain technology for recreation and leisure. The most expensive CryptoKitty sold for around 110,000 USD in 2018.
While CryptoKitties may be slowly dropping in popularity, the NFT market it helped create just kept on growing. It grew from 31M USD in 2017 to 711M USD as of June 2021. Anything that can be of value and is unique has been tokenized. They include art, music, virtual items in games, video clips, and virtual land
Examples of NFT’s
In March of 2021, a digital sculpture called “Not Forgotten, But Gone” by Whisbe was sold for $1M (Source). It is based on the theme of gummy bears and there is a series of digital arts based on the same theme.
Around the same time, an album called “Gunky; Uprising” by 3Lau was sold for 1.3M USD. In fact, famous Hong Kong musician Joanus Lam sells single music NFT on Openlake for 1.2M USD.
In April 2021, “Replicator’’, a digital painting by Mad Dog Jones was sold for 4.1 MM USD. (Source) One of the unique features of this painting is that there is a copy machine in the middle of the painting. This painting will replicate itself every 28 days. This NFT takes advantage of the smart contract built inside the NFT.
The most expensive NFT sold today is the painting “Everydays — The First 5000 Days” by Beeple. It was sold for 69M USD at Christie’s. (Source)
From Arts to Sports and Games
You will be wrong to assume that NFT’s are all about music and arts. People love sports. Sports collectibles are a huge business. The NBA’s Top Shot product is a blockchain-based trading card system that has generated over $230 in gross sales, according to its creator Dapper Labs. Dapper Labs is using blockchain technology to create scarcity for digital assets. The system works like trading cards, only with NBA highlights and digital artwork. In fact, Dapper Labs is the former maker of CryptoKitties.
Games are indeed another big component of the NFT market. F1® Delta Time is a blockchain-based game licensed by Formula 1®, developed and published by Animoca Brands. The game utilizes the Ethereum blockchain and ERC-1155, ERC-721 and ERC-20 standards for non-fungible and fungible tokens. Game assets including Cars, Drivers, Components, Gear, and Tyres are all non-fungible tokens (NFTs), granting true digital ownership to the owners.
F1® Delta Time consists of a collectible element based on NFTs as well as several game modes utilizing those NFTs, including the Grand Prix™, Time Trial, and Elite Time Trial. F1® Delta Time also features auxiliary functions such as Workshop, Garage, and Marketplace.
In fact, Animoca Brands is based in Hong Kong and represents Hong Kong's success in entering NFT’s market.
Why the Popularity of NFT’s?
Firstly, NFT is a new asset class. When a new asset class is introduced, there is often initially a lot of excitement and enthusiasm. Also, it takes time for the market to learn how to evaluate the asset properly. NFT is no exception. The huge run-up in price is actually quite normal for a new asset class.
Secondly, in the last few years many people, including developers, miners, and investors have made a lot of money from crypto. They would like to continue the wealth buildup by reinvesting the newfound wealth in NFT.
Thirdly, the rich developers and miners who have backgrounds in engineering and computer science may want to zproject an artsy image. What’s a better way to become artsy by buying expensive arts tokenized by crypto?.
Benefits of NFT
The NFT’s benefits from the unique features of blockchains.
Immutability: Once the transactions are recorded on the blockchain, the data cannot be changed. So every art piece can be traced to the creator, ensuring authenticity. It creates confidence in the buyers.
Traceability: On the blockchains, both the ownership and the transaction price can be inspected easily before any buyer puts a bid in. It increases transparency.
Smart Contract: Smart contract can be built into an NFT. It allows many interesting effects. For example, the painting “Replicator” literally replicates itself every 28 days. Some smart contracts stipulate the creators to collect 10% of all the sales of the tokens, creating a royalty effect.
Decentralized: While the first purchase of the NFT often takes place on the marketplace, any subsequent buying and selling can be done peer to peer. It creates anonymity and reduces the cost.
Uniqueness: NFT is designed to be unique. So buyers do not have to worry about counterfeits.
Conclusion
NFT’s allow artists to bypass the traditional intermediaries such as galleries and auction houses and sell directly to buyers. It will raise the income of the struggling artists. The smart contracts allow the artists to receive residual income in each future transaction. The traceability feature will prevent counterfeits, preserving the values of their art piece. All these advantages should be welcomed by artists who work in digital arts.
For buyers, NFT can allow transactions to take place on a decentralized basis, cutting down costs. The traceability feature will protect them from buying counterfeits. Once the NFT’s are stored in a wallet, they are very secure. They don’t need to worry about theft and damage, unlike traditional artworks.
I believe NFT is able to solve many pain points in the art world. Young artists are very open to using blockchain technology to their advantage. The NFT market is still in its infancy. I am sure many more interesting applications will be developed very soon.
Written by Dr. Kyle Wong, President of Blockchain Development
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