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Getting to Know NFTs and its Significance in Web3

auto_awesome Development   •   June 17, 2022   •   perm_identity Nithya Rachel
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Web3, NFTs and Metaverse are making waves in technology circles. You may have noticed that not a day goes by without the terms NFT, Web3 and Metaverse appearing in your social feeds. While Mark Zukerberg’s Metaverse is a pretty straightforward concept for anyone to understand, the other terms are completely new concepts that can leave heads spinning. In this article, let us demystify NFT and its significance in web3.

Overview

What is NFT?

NFT stands for a non-fungible token. NFTs are unique and noninterchangeable tokens that cannot be forged or otherwise manipulated. NFTs work on blockchain technology and are used to digitally certify the proof of ownership of an item.

Fungible vs Non-Fungible Assets

To understand the term NFT better, let us first clear the air on what are fungible and non fungible assets in both the real world and in blockchain. Fungibility denotes an asset’s ability to be interchanged for something of equal value. For example, in the real world money is a commodity with fungible property. You can exchange currency to different denominations without losing the actual value. Similarly in the digital world, cryptocurrency is an example of a fungible commodity. A non-fungible asset has unique properties and can’t be replaced with something else. For example a diamond is a non-fungible asset because each diamond has unique properties such as cut, color, size; they cannot be interchanged fairly. In the digital world, digital art collections, collectibles, music, games, virtual real estates are examples of non-fungible assets.

How Does NFT Work?

As discussed in the previous section, NFTs exist in the blockchain ecosystem. Technically, NFTs are not created but minted. Minting an NFT is the process of converting a digital file into a blockchain-based NFT. Essentially, an artist or a digital creator, sets up a crypto wallet and connects to an NFT Marketplace. Some popular NFT marketplaces are:  OpenSea, Foundation, Rarible.

The creator uploads a digital file and gives the NFT a name.The creator of a non-fungible digital asset is recorded on the blockchain public ledger. The record in the ledger allows the creator to set a fee (or royalty) for the digital asset and earn a passive income every time the asset is sold. NFT royalty payments are automatically executed by smart contracts.  The decentralized ledger makes it possible to trace the ownership and transaction history of each NFT. The majority of NFTs reside on the Ethereum blockchain due to its popularity. The value of the asset is primarily set by market demand.

NFT Features

The following are some of the salient features of non-fungible tokens:

  • Uniqueness –  Each NFT has a unique attribute that is recorded in the token’s metadata. The token makes each NFTs unique and no two NFTs are alike.
  • Scarcity – NFT creators decide on the scarcity of their asset. This feature is useful when selling digital tickets of any kind. 
  • Indivisible – NFTs cannot be split into smaller denominations or owned by multiple creators. The asset ownership is guaranteed by the tokens.
  • Forgery proof– Although the assets can be easily transferred, it cannot be tampered due to the digital signature.

NFT Use Cases

Gaming

Many gaming systems already support virtual currencies like bitcoin. Players can now trade in-game collectibles using NFTs. You could buy NFT items for your character and sell the items once you are done to reimburse your currency.

Digital Real Estates

From celebrities to tech enthusiasts, the digital real estate market is booming. NFTs can be deployed for house plans, themes, domains and other real estate factors. Decentralland allows players to purchase and develop and trade spaces in the virtual world. NFTs can be used to trace back an item to the original creator.

Digital Collectibles

Because the authenticity and ownership of a collectible can be verified in NFT is why the technology is so popular. With NFT, artists can be sure that their artwork is not tampered, pirated or inappropriately used while also earning royalty.

Identification and Certification

The properties of NFTs are great for issuing certificates, licenses and other identifications. The certificates can be issued through the blockchain as an NFT to allow traceability back to the source. Smart contracts are already being deployed in various industries and NFT makes them more authentic.

NFT Domain Names

NFT domains are public blockchain-based domains that provide users entire control of their stored data. They can be used to replace wallet addresses with easy to remember domain names and also for hosting websites on web3.

Why Are NFTs Gaining Popularity?

Although NFTs have been around since 2015, they have gained popularity only in recent times. Since the pandemic, there has been a wider acceptance of cryptocurrencies and blockchain frameworks in the mainstream. NFT is a big boon for content creators to copyright their work and secure their work from copyright infringements. Many early adopters also feel that NFTs can be used in the mainstream to protect documents such as deeds and medical records.

Significance of NFT in Web3 and Metaverse

As web3 and metaverse projects are gaining traction, NFT is seen as a one of a kind solution to maintain uniqueness and ownership of objects in web3 and metaverse. From NFT web3 domains that don’t expire to allowing people to purchase real estate in the metaverse and trading collectables, NFTs are here to stay in the Web3 and Metaverse era.

Looking to leverage NFT and blockchain solutions, get in touch with us for future ready solutions.