Blockchain 101 #16: NFTs (Non-Fungible Tokens): The Digital Collectibles Revolution

Non-fungible tokens (NFTs) seem to be everywhere these days. From Coachella tickets to apes and penguins, these digital assets are selling like hotcakes—some for millions of dollars.

But what is all this hype revolving around NFTs?

Non-fungible tokens (NFTs) have emerged as a groundbreaking force, revolutionising the way we perceive, create, and trade digital collectibles and art. This transformative technology, enabled by blockchain, has disrupted traditional notions of ownership, authenticity, and value in the realm of digital assets. In this article, we will embark on a journey into the world of NFTs, exploring their origins, mechanics, and the profound impact they have had on the digital collectibles market.

NFTs, born out of blockchain technology, have their roots in the desire to create unique, verifiable digital assets. Unlike fungible tokens such as Bitcoin or Ethereum, NFTs are indivisible and cannot be exchanged on a one-to-one basis. Each NFT is distinct, carrying with it a unique identifier (ID) that sets it apart from any other token. This individuality is achieved through the use of self-executing smart contracts with the unique token metadata all directly written into code.

At the core of NFTs is the concept of ownership and provenance. Blockchain ensures that each NFT is securely stored and tracked on a decentralised ledger, making it impossible to duplicate or forge. Smart contracts facilitate the transparent transfer of ownership (through approval functions), guaranteeing authenticity and providing creators with a means to receive royalties every time their work is sold. This mechanism has empowered artists and content creators in unprecedented ways, fostering a direct relationship with their audience.

Within the realm of NFTs, two prominent token standards have played pivotal roles in shaping the ecosystem: ERC-721 and ERC-1155.

In our previous article about Understanding Token Standards, we talked briefly about ERC-721, the first widely adopted standard for NFTs. While non-fungible tokens have been around since 2014, ERC 721 opened up the gates for the mainstream popularity of NFTs only in 2017 with the initial hype revolving around CryptoKitties. Each ERC-721 token within a collection represents a distinct digital asset, making it ideal for digital art and other one-of-a-kind creations. In the context of CryptoKitties, each CryptoKitty NFT is unique, with different traits and metadata coded into each token that is minted.

On the other hand, ERC-1155 is a hybrid non-fungible standard that allows for the creation of both fungible and non-fungible tokens within the same contract. Modelled after the idea of merging the best of ERC-20 and ERC-721, this standard allows encompassing multiple assets in one smart contract. This standard is particularly advantageous for projects where a combination of unique and interchangeable assets is desirable, offering flexibility and efficiency.

Wait... but how does ERC-1155 combine these 2 token standard types together into one smart contract?

For ERC-721, each asset can only be minted one at a time, with each asset containing a unique set of metadata and a distinct identifier under one smart contract address. Whereas, for ERC1155, multiple assets can be minted at a time, with the token standard containing a function that allows the batch minting of NFTs. This means that for ERC-1155, there can be multiple NFTs under one smart contract address.

NFTs have sparked a renaissance in the world of digital collectibles. From virtual trading cards to digital art, the possibilities are limitless. One of the most notable examples is the rise of digital art marketplaces, where artists can tokenise their work and sell it directly to collectors. This democratisation of the art world has shattered traditional barriers, enabling emerging artists to gain recognition and compensation for their creations.

Currently, there are several notable NFT marketplaces, let's go over a few of them 😉

1. Opensea

   OpenSea supports a wide variety of NFTs, including collectibles, art, music, and virtual worlds. OpenSea's user interface is easy to use and it offers a variety of features, such as the ability to create and manage your own NFT collection.

2. MagicEden

   MagicEden is known for its focus on Solana-based NFTs, and it has a strong community of users and creators. MagicEden's user interface is clean and modern, and it offers a variety of features, such as the ability to filter NFTs by rarity and price.

3. Blur

   Blur is a newer NFT marketplace that has quickly gained popularity due to its zero-fee model and its focus on Solana-based NFTs. Blur's user interface is simple and elegant, and it offers a variety of features, such as the ability to create and manage your own NFT collection.

• Market Volatility

  The NFT market is characterised by its high volatility, with prices of individual NFTs fluctuating significantly over short periods. This volatility is driven by a combination of factors, including supply and demand dynamics, speculation, and media hype. The lack of intrinsic value of many NFTs further exacerbates the volatility, as their prices are often based on subjective factors rather than underlying fundamentals.

  The volatile nature of the NFT market has led to concerns about its sustainability and potential for exploitation. Investors face significant risks of losing money due to sudden price drops, and the market's susceptibility to manipulation raises concerns about unfair practices and scams. SO BE CAREFUL !!

• Copyright Infringement

  The ease of replicating and distributing digital assets has raised concerns about copyright infringement in the NFT space. Unauthorised copying and sale of copyrighted material have become a prevalent issue. This is particularly concerning for artists and creators, who may find their work being exploited without their consent or compensation.

As NFTs continue to gain mainstream acceptance, their impact on the digital collectibles landscape is poised to deepen. The technology's potential applications extend beyond art and collectibles, with industries such as gaming, real estate, and music exploring the integration of NFTs into their ecosystems. The dynamic nature of blockchain technology ensures that the NFT space will remain a fertile ground for innovation, presenting new opportunities and challenges for creators, collectors, and enthusiasts alike.

Overall, non-fungible tokens represent a revolutionary force in the digital realm, reshaping the way we perceive and interact with digital assets. The ability to tokenise and authenticate digital collectibles has empowered artists, transformed market dynamics, and opened up new possibilities for creators and collectors alike. As we navigate this exciting frontier, it is essential to address the challenges and ethical considerations, ensuring that the NFT revolution remains inclusive, sustainable, and true to its promise of democratising the world of digital ownership and creativity.

We, from Blockchain at NTU, thank you for being part of this enlightening journey and extend a warm welcome to the enthralling universe of blockchain!

NOTE: Articles written by Blockchain at NTU ARE NOT FINANCIAL ADVICE!

Written By:
Dann Wee
Research Director of Blockchain at NTU Club AY23/24

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