What is NFT? Decoding the NFT fever & 4 common misunderstandings
What is NFT? Where did NFTs come from? Why is NFT driving so many people crazy? What are the 4 common misunderstandings about NFT?
In the past, it used to cost us almost nothing to create an item in the digital world. Therefore, these items become worthless, because it is not difficult to create.
However, with the advent of blockchain, the scarcity in the digital world has begun to take shape and connect part of the real world with the virtual world.
NFT is one of the key cornerstones of the new blockchain-powered digital economy. NFT has been and is being tested in many areas such as gaming, digital identity, licensing, certification and fine arts.
Users can even split and own proportionally high-value items.
In this article, idolmeta.net will provide you with an overview of NFT including:
- What is NFT? Origin, characteristics, value and application of NFT in the Crypto world.
- Criteria for evaluating a potential NFT project.
- Some common misunderstandings about NFT.
What is NFT?
NFT stands for Non-fungible Token, which is unique and cannot be replaced by other tokens. This can be a virtual asset or a digital version of a real-world asset.
Since each NFT is unique and they are NOT interchangeable, they can act as proof of authenticity and ownership in the digital realm.
For example: When owning Fungible Tokens, you can trade or exchange with others because their values are equivalent.
But Non-fungible Tokens represent different collectible items or assets, so NFT is widely used by artists, illustrators or game developers to tokenize products. your products and make them unique.
Some NFT projects
Origin of NFT
During the 2 year downtrend of the Crypto market (2017 – 2019), the best that projects can do is focus on building and creating real products with real value, this is exactly what the top NFT projects have strived to do throughout the past cycle.
Decentraland (MANA) raised $20 million in 2017 and successfully launched its platform in 2020.
Nearly all of Decentraland’s trading volume is done on Cryptovoxels – a platform that runs on its own thanks to its financial revenue from the sale of digital parcels of land.
We can see that the crypto ecosystem as a whole has just made another leap in infrastructure during this downtrend.
Remember 2017: All you could do was join a project on Ethereum when MetaMask was just getting started.
And now what we have is:
- Stablecoins: Coins born for the purpose of price stability.
- Non-custodial Wallet: A non-custodial asset storage wallet.
- Fiat On-ramps: A cryptocurrency exchange that allows cash to be deposited into the system and converted to cryptocurrencies.
- Fund Management Platforms: Fund management platforms.
- Decentralized Storage Solution: Decentralized storage solution.
- Digital Identity Providers: Digital identity providers.
It can be seen that a strong boom has occurred, because in the previous years, none of the names mentioned above was known or mentioned.
With the amazing applications and impressive returns that DeFi (Decentralized Finance) brings, Ethereum is starting to see a new cycle in user behavior that has been reflected many times before in the Crypto market.
The market is overblown and people are willing to throw more money into this ecosystem.
The growth of NFTs at this infancy is just beginning and has been accelerated by the initial high excitement.
Because NFTs are a way to store files on blockchains, they possess the basic features of blockchain tokens in general and NFT characteristics in particular:
- Uniqueness: These tokens are unique, even if other people create identical files they will still be different from previously created files.
- Perpetuity: The existence of these tokens is permanent, along with the information in that token such as messages, photos, sounds, or data, …
- Programmable: NFTs are also lines of code on the blockchain, and the author of the NFT can always be verified, regardless of how many owners the work has been.
- No licensing required: This is a feature of the NFT type. If the NFT was created on top of an open blockchain network, the NFT also inherits the network’s property of being arbitrarily accessible.
- Ownership: NFT holders have full discretion to own and use the NFT.
Learn more about how Blockchain works and details about Blockchain properties here: What is Blockchain?
NFT possesses the properties of Blockchain
How does NFT work?
First of all, we need to understand that NFTs are seen as collectibles or paintings, not as tokens with lots of incentives to increase buy demand.
Therefore, NFT valuation is like valuing a real-life precious item, whoever feels it has a price, it will have a price.
Example: There are many abstract paintings worth several thousand dollars but very few people understand what it really means.
NFT Token Standards
Talking about the standard of issuance, usually in the Ethereum blockchain, the tokens are popular in ERC-20. But in NFT, many standards are applied, and the most prominent are ERC-721 and ERC-1155:
- ERC-721: For each new NFT token, the developer has to deploy a new smart contract, which wastes resources and takes time to build. Applications: CryptoKitities, CryptoPunks,…
- ERC-1155: This is a newer generation of improvements, but not yet popular. With ERC-1155, a developer can generate both Fungible and Non-fungible tokens in a single smart contract and can generate an infinite number of tokens on a single contract. Application: NFT on the Enjin platform.
In Binance Smart Chain, BEP-721 and BEP-1155 will be used, similar to the Ethereum system.
NFT . ERC-721 and ERC-1155 Token Standard
NFT Storage Wallet
Like other tokens, NFT can be stored on personal wallets, typically Trust Wallet.
It should be noted that the NFT cannot be copied or converted without the permission of the owner – even by the issuer of the NFT.
Value of Non-fungible Token and Paradox
Value of NFT
Currently, NFT is valuable in 3 aspects including:
- Value in terms of collateral: By real property. For example, if USDT, USDC are backed by US dollars, the NFT is guaranteed in the game, increasing the value and rarity of that NFT.
- Application value: Application in storage, ensuring credibility.
- Expected Value: Expresses the buyer’s expectation that the price will increase in the future.
The above values will not be outside the market’s demand, participants when owning a certain type of asset also expect it to increase in value in the future and gain profits from it.
DeFi is also currently considered a trend, it is exploding, but it is not an ordinary trend in itself.
DeFi is understood as an ideal that the builders of Blockchain technology are aiming for, and it is a matter of time, may cool down for a while but will not be over.
The paradox of the value of NFT
This is not an easy question to answer, because for each NFT work or product, each of us has our own way of pricing according to our preferences and other factors that affect the value.
There are works worth just a few dozen dollars on NFT like logos, but there are also NFT paintings worth up to 69.3 million dollars like “Everydays: The First 5,000 Days”.
Here’s one Twitter user’s theory about the virtual hype of the NFT market and how to monetize the NFT market.
- Step 1: Create a work that is beautiful and stands out from the others
- Step 2: Use 2 million dollars to buy your own work to create hype in the community
- Step 3: Resell the work at a 90% sale price, only $20,000
In the end, I lost nothing but gained an extra $20,000 from my own work.
What do you think about the hypothesis, whether NFT is a bubble created by the big players in the NFT market to create a “hype” for the NFT market, increasing the value of the tokens of the NFT project.
Classification & Application of NFT
You may not have thought about it, but “irreplaceable” assets are the most valuable assets because they cannot be created anymore, they will have their own value for a group of people.
Such assets can be physical objects such as pictures, or more broadly, real estate around the world. Here are the applications of NFT in specific areas:
Art products on blockchain can easily verify product owner and author. Issues of copyright, or copyright, will be neatly handled with blockchain technology.
A prime example of NFT in art, is a digital painting that just sold for nearly $70 million – setting the record for the highest price NFT ever sold.
In-game items – NFT Game
Video games have been coded from the ground up, so it would be super easy to include NFTs in games.
There are many projects to use games as development levers for the NFT project, such as Axie Infinity – a Pokemon game simulation project that creates NFT Pokemon and has them fight.
Electronic transaction card
Sorare and NBA Top Shots are two top sports card collector apps. Both cater to e-sports games.
Origin tracking and specification validation
In the ordinary world, art products will take a lot of time, effort and money to verify a work is genuine or not.
With blockchain technology, it becomes extremely easy and convenient.
Domain names are also NFT products because they are different, unique, and have long been in the business of domain names.
Music, tweets, memes, and technical content can all become NFTs, making that content unique and meaningful.
Recently, there are many tweets that have been sold at sky-high prices, for example the first tweet of the founder of Twitter sold for $ 2.5 million.
Or what do you think if there are songs of idols that only you can own the copyright? In my opinion, in the future, content development platforms will become the target of many NFT projects.
Tokenization of high-value objects
In February 2020, a bottle of real Fine was sold as NFT to avoid counterfeiting from counterfeiters.
This is the first time that a real-world substance has been “tokenized”, as proof of ownership of a bottle of wine by a buyer, and sold on OpenSea – an NFT marketplace that allows the trading of NFT ERC-721 tokens.
There are many financial products in the real world that are non-exchangeable and non-substitutable.
For example, your mortgage on your home cannot be the same as someone else’s mortgage.
As another example, the real estate sector can “tokenize” plots of land and houses to make trading transparent and clear.
Tickets to the event
In the physical world, event tickets can be forged easily, but in the blockchain world, counterfeiting is impossible.
In 2020, the UEFA Champions League sold tickets to the audience with online tickets based on blockchain technology.
How to create NFT
There are many ways to create NFTs, but all go through the following 4 steps:
Step 1: Determine which file you want to turn into NFT. There are many types of files that can become NFT, such as image files (JPG, PNG,…), audio files (MP3,…),…
Step 2: Create an Ethereum wallet to access the NFT Marketplace, and deposit an amount of Ethereum used to create NFT on the Ethereum network.
Step 3: Connect the wallet to the NFT Marketplace. Once connected, you can already access all the features you need to create, buy, and sell NFTs.
Step 4: Upload your file to the platform and fill in the necessary information such as NFT description, number of copies you want to create, etc. and start minting that NFT, with an amount of Ethereum fee to generate NFT. This fee is to confirm this NFT is part of the Ethereum network.
Criteria for evaluating potential NFT tokens
To appreciate the potential of NFT or NFT Token projects, you need to understand:
- What is the nature of the project?
- What is the token’s capitalization?
- Are the dev team and the project’s products good?
And if you have technology expertise, you can see more about the code, smart contract, … of the project to check the safety and accuracy of the project.
Finding vulnerabilities in smart contracts in projects can make a lot of money from that project. From there, you can judge for yourself whether the project is realistic or not.
For an in-depth understanding of the NFT puzzle pieces in each ecosystem and potential investment opportunities with NFT in DeFi, please refer to the article below.
Read more: NFT Analysis – The combination of NFT and DeFi, where is the investment opportunity?
Common misunderstandings about NFT
Is NFT just Trend or not?
Trend is a prevailing trend, it will not go away but can go down for a while, when the market starts to pay attention, it is considered a trend, similar to the current NFT is considered a trend. trend is because it is of interest to the community.
Why buy an NFT instead of just taking a screenshot of the artwork?
Of course, you can take pictures of the artwork, print it and stick it on the wall. Just like you, you can download the Mona Lisa painting and stick it on your wall.
However, your painting is not the real Mona Lisa and has no value. The original painting was paid hundreds of millions of dollars, but the brother’s picture printed out, anyone can make a copy like that.
How is NFT valued?
Certainly not all NFTs are valid. There are a lot of NFTs that create without value, NFTs with value or not, over time, they will be valued by the market.
Do NFTs that “tokenize” real things still have value if they break?
If real items are damaged, damaged or lost, the NFTs will only be left with verifying that the owner of the NFT is the original owner of the item.
Thus, I have provided you with the most overview of what NFT is and some frequently asked questions about NFT.
What do you think about the potential and viability of the NFT trend? Share your thoughts in the comments section below!