Art, blockchain, crypto currencies and gaming: definition of an NFT
The answer to the question “What is an NFT ?” is very often something like: an NFT (Non Fungible Token) is therefore an unfungible token. But first, what does non-fungible mean? This swear word used in law is much less so in our everyday language.
A non-fungible good is one that is not interchangeable, meaning that it is unique and cannot be confused with any other good. A commodity such as rice or a cryptocurrency such as Bitcoin are examples of fungible goods: they can be replaced by similar goods without the need to differentiate between them.
This cryptographic and non-fungible token is therefore stored on a blockchain (most often Ethereum) to become the certificate of authenticity for a digital file attached to it (most often art). The digital file itself is fungible: an image, video or sound can be copied and duplicated, but not the cryptographic token that serves as its certificate.
Is an NFT art on the blockchain?
Not necessarily, and certainly not really! NFTs , as we know them, have been around since 2014 or so, but became globally known from 2016 and 2017 thanks to the first art collections using this technology: Rare Pepes, CryptoPunks and CryptoKitties.
Today, we tend to attach NFTs to the digital files they certify, and this is quite normal, but technically speaking, an NFT remains an original use of smart contract: a token stored on the blockchain.
The blockchain’s operation enables it to certify the validity of all transactions within it, and therefore the validity of a non-fungible token stored on it. It’s also very easy to browse the blockchain to observe transactions, enabling anyone to verify the origin and complete history of an NFT.
To greatly simplify matters, an NFT is a certificate of authenticity, immutably stored on the blockchain, making it more effective than a paper certificate of authenticity.
It can be used in a variety of ways: many schools are already issuing their diplomas in the form of NFTs so that they are forgery-proof. Some luxury watch brands have also come up with the idea of using blockchain to certify their creations. In short, there are no limits to the use of NFTs !
History of NFTs
Non-fungible tokens (NFTs) have turned the world of digital assets and blockchain upside down, offering a novel approach to designing, holding and marketing singular digital items. The history of NFTs over the years has been marked by a number of milestones. Here is a journalistic account of these milestones.
- The emergence of CryptoPunks (2017)
The NFT adventure began in 2017 with the invention of CryptoPunks by developers Matt Hall and John Watkinson. These 10,000 distinct and unique little digital characters are generated using an algorithm. Each character is distinguished by a variety of attributes and accessories. CryptoPunks were the first NFTs on the Ethereum blockchain, laying the foundations for NFTs as we know them today.
- The emergence of CryptoKitties (2017)
In November 2017, the release of CryptoKitties marked a decisive turning point in the history of NFTs. Dreamed up by Axiom Zen (now Dapper Labs), CryptoKitties are distinct virtual cats that can be acquired, assigned, raised and bartered on the Ethereum blockchain. The spectacular popularity of CryptoKitties has popularized the concept of NFTs and revealed their potential as digital collectibles.
- The introduction of the ERC-721 standard (2018)
In January 2018, developer William Entriken published the ERC-721 standard for the first time. This establishes the fundamental rules for creating and managing NFTs on the Ethereum blockchain. Quickly adopted by numerous NFT projects, including CryptoKitties, it became the default standard for NFTs.
- The emergence of NFT trading platforms (2018)
In 2018, several NFT trading platforms are emerging, such asOpenSea and Rarible. These platforms offer users the opportunity to acquire, assign and exchange NFTs in a decentralized way, thus constituting a marketplace for singular digital items. The birth of these platforms has facilitated the growth of the NFT market and paved the way for new projects and creations.
- Soaring sales ofdigital art (2020-2021)
In 2020 and 2021, NFTs conquered the world of digital art. Artists such as Beeple, Pak and Trevor Jones sold their works as NFTs for staggering sums. The peak of this trend was reached with the auction of Beeple’s “Everydays: The First 5000 Days” for $69 million at Christie’s in March 2021. This event captured the attention of the general public on NFTs and their potential as a means of investment and monetization for creators.
- The expansion of video games using NFT (2020-2021)
The video game sector has also been revolutionized by NFTs. Initiatives such asAxie Infinity and The Sandbox have integrated NFTs to represent virtual objects, characters and game environments. These games enable players to acquire NFTs as they play, which can then be sold or traded on commerce platforms. The growth of NFT-based games has opened up new prospects for developers and players alike, creating a booming market for interactive digital assets.
- NFT and celebrity partnerships (2021)
In 2021, many celebrities and public figures expressed their interest in NFTs, contributing to their popularization. Artists such as Grimes, Lindsay Lohan and Steve Aoki created and sold their own NFTs, while brands such as Nike and Louis Vuitton explored the possibilities offered by NFTs in fashion and luxury goods. These partnerships have broadened the audience for NFTs and demonstrated their potential in different sectors.
- The development of music NFTs (2021)
The music industry has also been affected by NFTs. Artists such as Kings of Leon, Deadmau5 and 3LAU have used NFTs to sell tracks, albums and exclusive experiences. Music NFTs offer artists an innovative way to monetize their work and connect directly with their fans.
- The emergence of NFT-based metavers (2021)
Metavers are persistent virtual worlds where users can interact, create and exchange digital objects. Projects such as Decentraland and Somnium Space have adopted NFTs to represent real estate and objects in their virtual worlds. NFT-based metavers offer users a real sense of ownership and value for their digital assets.
- Environmental concerns and green blockchains (2021)
As NFTs gained in popularity, environmental concerns were raised due to the energy consumption required to create and exchange NFTs on the Ethereum blockchain. In response to these concerns, projects such as Tezos and Flow have developed eco-friendly blockchains and less energy-intensive NFT standards, paving the way for more sustainable practices in the NFT world.
Frequently asked questions about NFTs
Recently, the digitalasset and cryptocurrency sector has been turned on its head by the arrival of NFTs (non-fungible tokens). Their growing popularity is affecting diverse sectors such as art, video games and collectibles. Here’s a look at some of the most frequently asked questions about NFTs, and some detailed answers to help you better understand how they work and what they’re used for.
- What is an NFT?
An NFT, or non-fungible token, is a unique and indivisible cryptographic token representing a digital asset. Unlike traditional cryptocurrencies such as Bitcoin, NFTs are distinct from one another and cannot be exchanged on a one-for-one basis. They are primarily used to represent unique digital assets such as collectibles, artworks, virtual goods, etc.
- How do NFTs work?
NFTs operate using blockchain technology, which records the ownership, transaction history and unique characteristics of each digital asset. They are generally based on specific blockchain protocols such as Ethereum, which supports the ERC-721 and ERC-1155 standards for NFTs. These standards enable NFTs to be created, managed and exchanged in a decentralized and secure way.
- What’s the difference between an NFT and a cryptocurrency?
The main difference between an NFT and a cryptocurrency lies in their fungibility. Cryptocurrencies are fungible, meaning that each unit can be exchanged for another unit of equivalent value. NFTs, on the other hand, are non-fungible, meaning that each NFT is unique and cannot be exchanged on a one-for-one basis with another NFT.
- How do I buy and sell NFTs?
To buy and sell NFTs, you need to use NFT-specific exchange and marketplace platforms, such as OpenSea, Rarible or Nifty Gateway. These platforms allow users to browse, bid, buy and sell NFTs using cryptocurrencies, usually Ethereum. You’ll also need a compatible digital wallet to store and manage your NFTs and cryptocurrencies.
- What are some common uses for NFTs?
NFTs have a wide range of applications, notably in the fields of :
- Digital art: Artists can create NFTs representing unique and limited digital works of art, enabling them to monetize their work and protect their copyrights.
- Collectibles: NFTs can represent digital collectibles, such as trading cards, stamps or coins.
- Video games: NFTs can be used to represent virtual objects, characters or terrain in video games, offering players a real sense of ownership and value.
- Licenses and patents: NFTs can be used to represent licenses, patents or other intellectual property rights, making it easier to manage and transfer these rights.
- Virtual real estate: NFTs can be used to represent real estate in virtual worlds, such as land or property in metaverses.
- What are the advantages of NFTs?
NFTs offer a number of advantages, including
- Proof of ownership: NFTs make it possible to clearly establish ownership of a digital asset and track its transaction history.
- Liquidity: NFTs can be traded on decentralized exchange and market platforms, providing liquidity for unique digital assets.
- Rarity: NFTs can be issued in limited quantities, giving them intrinsic value due to their scarcity.
- Monetization: NFTs offer creators and owners of digital assets a way to monetize their work and generate revenue.
- Provenance: NFTs enable the authenticity and provenance of a digital asset to be verified, reducing the risk of fraud and counterfeiting.
- What are the disadvantages of NFTs?
NFTs also have a number of disadvantages:
- Legal and copyright issues: NFTs raise complex copyright, intellectual property and regulatory issues that remain largely unexplored.
- Transaction costs: Transaction costs for buying, selling and creating NFTs can be high, particularly on the Ethereum blockchain.
- Price volatility: The value of NFTs can fluctuate considerably according to market demand and trends, which can lead to financial losses for investors.
- Environmental issues: The creation and exchange of NFTs on certain blockchains, such as Ethereum, can consume a significant amount of energy and contribute to the carbon footprint.
- How can I store NFTs securely?
To store your NFTs securely, we recommend using a compatible and secure digital wallet, such as a hardware wallet (like Ledger or Trezor) or a reputable software wallet (like Metamask or Trust Wallet). These wallets enable you to keep your private keys safe, reducing the risk of theft or loss of your NFTs.
- How are NFTs taxed?
The taxation of NFTs depends on the specific tax laws of each country or jurisdiction. In many countries, gains from the sale of NFTs are considered capital gains and are taxable. NFT creators may also be subject to income tax on income generated by the sale of their digital assets. It is advisable to consult a tax advisor or an expert in the field for precise information on the taxation of NFTs in your jurisdiction.
- What does the future hold for NFTs?
The future of NFTs is still uncertain, but there’s no denying that they have generated considerable interest and opened up new opportunities for creators, collectors and investors. NFTs could continue to develop and diversify into various sectors, such as music, film, fashion and sports. However, it’s also possible that the current craze for NFTs will subside and their popularity will wane.