Non-Fungible TokensA Non-Fungible Token, non-replaceable token or unique token (NFT) is an association (a type of ownership) on a blockchain of an account to a unique (non-exchangeable) digital item via a smart contract. NFT is a way of linking ownership to digital items. Possibly the digital item represents a physical property as a kind of proof of ownership, but it is mostly about digital objects.
A non-fungible token (NFT) is a special type of cryptographic token that represents a digital object such as an image, a video, an audio file, to which is attached a digital identity that is linked to one or sometimes several owners. Its authentication is validated through the protocol of a blockchain which gives it its first value. Non-fungible tokens are therefore not interchangeable. This is in contrast to crypto-currencies such as bitcoin and many utility tokens which are fungible in nature. Thus, the value of this object varies according to the price of the crypto-currency it represents, but above all according to its intrinsic value, due to its originality and rarity. It is the game of supply and demand, like the art market or the collectors
Non-fungible tokens are used wherever they can be assigned to virtual goods, i.e. digital art, music or individual objects in computer games, especially in DApps, right away to a label and can thus be collected and traded like the unique objects themselves. As a rule, the trading platform on which the artworks are offered assigns object and token to each other. Unlike the tokens themselves, which are stored in countless copies in the public blockchain, this private register can perish or disappear from the network with the server.
NFTs are offered by many blockchain projects (commonly referred to as cryptocurrencies). The most common blockchain (as of August 2021) used for NFTs is Ethereum.
The NFT does not automatically transfer all rights of use to the copyrighted work. The respective legal significance of an NFT transfer is determined individually and privately autonomously by the contracting parties and may vary depending on the contractual arrangement; in particular, it may only cover individual types of use (cf. for Germany Section 31 UrhG).
Colored coins are considered the precursor of NFTs. In 2017, the first NFTs went online with CryptoPunks. In the same year, NFTs became a mainstream phenomenon with CryptoKitties. Trading accounted for much of the total Ethereum transfer. In 2018, the Centre for Arts and Media dedicated an exhibition to CryptoKitties.
In 2019, the market capitalisation of all NFTs was the equivalent of approximately US$210 million. In February 2021, Christie's became the first major auction house to enable payment with cryptocurrencies for the auction of the work Everydays. The First 5000 Days by US digital artist Beeple. The collage of 5000 small images set a record for digital art, selling at auction for 42,329,453 ETH (equivalent to US$69.3 million). It was the third highest auction price ever for a work by a living artist. The buyer appears on the internet under the pseudonym MetaKovan. Behind it is the crypto-based fund Metapurse, which acquires NFTs and other virtual objects and claims to be the largest NFT fund in the world. By July 2020, the turnover of all NFTs traded so far was US$100 million. NBA trading card platform NBA Top Shot sold over US$500 million worth of NFTs in Q1 2021, and cracked the one million user mark in May 2021. In total, US$2 billion worth of NFTs were sold in Q1 2021.
Well-known examples are the individual cats in CryptoKitties, each of which is unique and can be transferred to the standalone game coinsandsteel.com or Decentraland to play with, as well as user-created items in the game The Sandbox. Nike holds a patent on its NFT shoe "CryptoKicks". Microsoft has published its own NFT project called Azure Heroes on its cloud platform Azure with the aim of rewarding the developer community. Azure Heroes is based on the ERC-1155 protocol. Developed by the Enjin team, the protocol has been officially approved.
A virtual Formula 1 NFT racing car was sold in F1 Delta Time for 415.9 ETH (about US$113,000), and NFT player cards licensed by FC Bayern were sold for 240 ETH (about US$31,100). In addition, there are regular auctions of Goati for the racing game 22Racing. The special feature is that an entire racing car in turn consists of a total of 22 parts (Multi Layer NFT). In April 2021, an Edward Snowden NFT was sold for over 5.4 million US dollars. The proceeds went to the Freedom of the Press Foundation An NFT of the source code of the World Wide Web by Tim Berners-Lee was sold through Sotheby's for the equivalent of 5.4 million US dollars.
NFTs are also experiencing hype due to the sale of virtual land in the metaverse.
In low-wage countries such as the Philippines, play-to-earn with non-fungible tokens now counts as a desirable profession.
In Q1 2021, 10% of global revenue in the art market was generated through NFTs. In the first half of 2021, $2.5 billion in NFTs were transacted globally.
In May 2021, GameStop announced an NFT marketplace based on the Ethereum blockchain.
The world's largest marketplace for NFTs is OpenSea. In May 2021, eBay announced the sale of NFTs.
Sale of NFTs
The first buyer is often someone who, often after an auction, for a fee to the creator, arranges the placement on the blockchain together with the creator and the auction house. Creator, buyer and marketplace work together in the sale of NFTs. Just like selling crypto currency, the owner can sell the NFT. The digital item can be, for example, art, audio, video and other forms of creative work. The blockchain can contain the digital item itself, or a reference to a copy stored elsewhere. The latter is the most common. Although the digital files themselves are infinitely reproducible, the NFTs they represent are, as mentioned above, maintained on their underlying blockchains, and provide buyers with proof of ownership of the NFT (which does not necessarily correspond to traditional legal rights such as copyright). Also, the creator can sell a limited right to the NFT, namely in the sense that each time the NFT is resold at a profit, the creator is entitled to a share of that profit agreed upon at the first sale.
Blockchains on which NFTs can be placed include Ethereum, Bitcoin Cash, Flow and Tezos. Each has its own standard for using NFTs. Ethereum is by far the most popular.
NFTs can be used to make digital creations available, such as digital art, video game items and music files. It is now widely used for digital art and digital collectibles. However, access to a copy of the original file is not limited to the owner of the token; often the copy can still be found somewhere online. The first NFTs were based on Ethereum and appeared around 2015. The increased interest in the market for NFTs has led to more speculation, as the same investors who had previously speculated on cryptocurrencies increasingly began trading NFTs. The market for NFTs is currently unregulated and therefore not without risk.
NFTs typically run on a proof-of-work blockchain, which is less energy efficient than a proof-of-stake blockchain, which has resulted in some criticism of the carbon footprint of NFT transactions. Ethereum announced a transition to the energy-efficient proof-of-stake blockchain in May 2021.
Non-fungible tokens are used to enable verification of verifiable digital rarity, digital ownership and interoperability of assets across multiple platforms. NFTs are used in several specific applications that require unique digital items such as crypto art (rare art), crypto collectibles, crypto-games or a photo.
Crypto trading card games were the first use cases for game-related NFTs. Projects like Age of Chains and Rare Pepes used the Counterparty protocol to issue Bitcoin-based blockchain trading cards as NFTs as early as 2016[ref needed].
Art was one of the first use cases for blockchain. The launch of CryptoPunks in June 2017 paved the way for crypto art on the Ethereum8 blockchain. DADA.art was built on the CryptoPunks model and launched the first marketplace for crypto art in October 20179.
Later, popular blockchain games like CryptoKitties used non-fungible tokens on the Ethereum blockchain10. NFTs are used to represent game assets and are controlled by the user rather than the game developer11 . This allows assets to be traded on third-party markets without the permission of the game developer. Crypto art markets include Nifty Gateway, Rarible, Super Rare, Known Origin and MakersPlace.
NFT Art Market
Art is an area of early use for NFTs and blockchain in general, due to their ability to provide proof of authenticity and ownership of digital or reproducible artwork, which would otherwise have to contend with the possibility of mass reproduction and unauthorised distribution over the internet. Platforms such as Superrare or Nifty Gateway that use the Ethereum blockchain, have specialised in the commoditised transaction of digital art, through sale, resale and auction.
"NFTs allow you to buy and sell ownership of unique digital items and track who owns them using the blockchain. NFT stands for "non-fungible token", and can technically hold anything digital, including drawings, animated GIFs, songs or video game items. An NFT can be unique, like a real-life painting, or a copy of many, like trading cards, but the blockchain keeps track of who owns the file.
In February 2021 he started a hype with the work "Everydays.The first 5000 days" by US digital artist Beeple, which was the first TNF artwork to be listed at Christie's, one of the leading auction houses. A few days later, the animated meme of Nyan cat had been sold on an internet site for USD 600,000.
In an analysis originally published in the online art magazine Artishock, and subsequently republished in the art criticism blog Colombia public sphere, the authors calculate the economic costs of participation in the NFT art market, warning that the notions of blockchain decentralisation and equitable access, which underpin the fabric of the new art market, are still distant for Latin American creators, due to factors such as access to infrastructure, devaluation of the local currency (which makes it costly to pay for transactions within Ethereum, and the acquisition of digital creation software), coupled with the lack of wide dissemination in digital art education.
In the first days of April 2021, different media outlets reported an average drop in NFT prices of around 70%. At the same time, several crypto-art works presented by auction houses raised millions of dollars within minutes of their launch, and a grey pixel was sold for more than 1 million dollars.
In Latin America, the first artists to enter the NTF market are Chilean illustrator Alberto Montt who sold his cartoon 'Good Friday' from his 'Daily Doses' series through the OpenSea platform and Colombian sculptor JoaquÃn Restrepo who sold 'Intimus'; his first work with NFT for 0.71 Ethereum which is equivalent to US$1,700 through the Foundation.app platform.
NFT Market Value
On 11 March 2021, artist Beeple sold his digital collectible "Everydays: the First 5000 Days" via auction house Christie's for $69 million, an NFT artwork the artist worked on for more than 13 years. Twitter founder Jack Dorsey's very first tweet was sold as an NFT for over $2.9 million. The NFT of the viral video "Charlie bit my finger" (the most watched video on YouTube in 2009 and totalling over 880 million views) fetched $760,000 (nearly 620,000 euros) at auction.
NFT Growth and mainstream appeal
NFTs first became popular when CryptoKitties went viral and subsequently raised $12.5 million in investment. RareBits, an NFT marketplace and exchange, raised $6 million in investment15. Gamedex, a trading card game platform enabled by NFTs, raised an $800,000 investment round. Decentraland, a blockchain-based virtual world, raised $26 million in an ICO, and had an internal economy of $20 million as of September 2018. Nike holds a patent for its blockchain-based NFT trainers called "CryptoKicks ". In March 2021, Jack Dorsey, the co-founder and CEO of Twitter, auctioned off the very first "I just created my twttr account" tweet posted on the platform for $2.9 million in NFT.
In June 2017, CryptoPunks was launched as the first non-fungible token (NFT) on the Ethereum blockchain by US studio Larva Labs, a two-person team consisting of Matt Hall and John Watkinson. In late 2017 another project called CryptoKitties went viral and subsequently raised a $12.5 million investment. RareBits, a marketplace and exchange house for non-fungible tokens, raised a $6 million investment. Gamedex, a collectible card game platform made possible by NFCs, raised a seed round of $800,000.28 Decentraland, a blockchain-based virtual world, raised $26 million in an initial coin offering,29 and had an internal economy of $20 million in September 2018.30 Nike has a patent for its blockchain-based TNF trainers called CryptoKicks. Kings of Leon's When You See Yourself album is the first music album distributed as non-fungible tokens. In February 2021, singer Grimes sold around $6 million worth of digital art on Nifty Gateway. On 17 March 2021, the band Belladonna became the first band in the world to hold an auction of a song using the 1-of-1 TNF that included the distribution rights to the master of the song.
TIME magazine auctioned three tokens in March 2021, one of which was on the cover of their magazine and whose text alludes to the death of fiat money, the highest price paid for one of them is 47,115 dollars.
Dapper Labs and NBA Top Shot
Dapper Labs, in collaboration with the NBA, launched in the first half of 2020 a beta version of their collectible and tradable TNF-based app, which they had been working on since 2018.36 It sells tokens in batches that are said to contain crushed multimedia and data. On 1 October 2020, it was announced that they were out of beta and open to all fans.37 As of 28 February 2021, Dapper Labs was reporting over $230 million in gross sales on the app.
The British AI artist Memo Akten criticised the disproportionate carbon footprint of NFT transactions and provided an online calculator for the CO2 emissions of individual transactions. The rapidly rising sales prices of NFTs in early 2021 were seen by many as a sign of an incipient price bubble. The German conceptual artist Max Haarich criticised NFT art by offering individual pixels at prices up to the equivalent of around 1000 and 1200 EUR on an NFT exchange, causing CO2 emissions of 125 kg.
NFTs on the Ethereum blockchain have been criticised because of the excessive energy costs involved in their creation. It has been estimated that an NFT art gallery consumes about 260 MWh over half a year and produces more than 160 tonnes of carbon dioxide emissions. This is compounded by the fact that most of the energy used by cryptocurrency centres does not come from renewable energy sources. Most cryptocurrency centres are located in geographic regions of the world where the majority of the world's cryptocurrencies are located. This is compounded by the fact that most of the energy used by cryptomining centres does not come from renewable energy sources. Most computer centres are located in geographic regions where electricity is cheap and in places where climatic conditions are conducive to cooling computers.
While some digital artists downplay the environmental impact of NFTs, a large group, including Alice Bucknell, Joanie Lemercier, have emphasised the ecological damage, as well as criticising the lack of transparency of NFT trading platforms about the carbon dioxide emissions produced by an NFT and its subsequent transactions.
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