A Complete In-Depth Guide To Non-Fungible Tokens (NFTs)
- July 14, 2023
- 668 views
- 19 minutes
Right alongside blockchain and cryptographic technology, it is NFT that has generated great excitement in the digital space, particularly in the art world. Non-fungible Tokens (NFTs) are a pretty easy concept to understand, and in this article, we will start with the basics and then move to the process of NFT development, its key elements, real-world use cases, and the future of NFT.
NFTs are digital assets that are unique and irreplaceable. This feature makes them incredibly valuable and tradeable. Although NFT was first introduced into the crypto market, with its origin tracing back to 2017, it was in 2020 when NFTs created hype and have been gaining popularity ever since. Just as digital currencies like Bitcoin are transforming the way transactions are done online, NFTs revolutionize the art world and open up new opportunities for digital creators and artists.
If you are interested to learn more about NFTs, you are on the right page. So, let’s start and see what the fuss is about NFT and what future it holds.
Table of Contents:
- Understanding NFTs: What is NFT?
- How NFTs are Changing the Digital Art World
- Key Elements of NFT Development
- NFT Standards: ERC-721 vs ERC-1155
- How to Create an NFT: Step-by-Step Guide
- Top NFT Marketplaces: Where to Buy and Sell NFTs
- Use Cases of NFTs Beyond Art
- Blockchain Technology in NFT Development
- Security Considerations for NFT Development
- Future of NFT Development: Trends and Predictions
Understanding NFTs: What is NFT?
NFT is the acronym for Non-fungible Token where non-fungible means something which is unique and cannot be replaced. It is a digital asset tokenized using blockchain technology and contains identifiable information recorded in smart contracts. Since the information is distinguishable and cannot be replaced by another NFT, no two NFTs can be alike. This is the reason every NFT is unique and not divisible, thus making it impossible to be manipulated or forged.
NFTs are different from crypto coins because the latter are fungible assets that are interchangeable. For instance, you can exchange a Bitcoin with another Bitcoin and nothing really changes because both have the same value. However, each NFT is a digital asset with a distinct value and you cannot find another NFT with the exact same features and the same worth. This is the place where the idea of NFT gets really interesting, especially if you are from the art world or an enthusiastic crypto investor.
Let’s start with a basic example to help you comprehend the idea of Non-fungible tokens better. Suppose you have a digital artwork such as a drawing, you can tokenize this virtual piece of art and convert it into a valuable NFT whose ownership belongs only to you. This NFT gets stored in the blockchain containing unique identification codes that distinguish it from other NFTs in the chain.
Cryptokitties’s digital collection is one of the first NFTs to become popular in the NFT market. This collectible contains thousands of digital kittens created using Ethereum’s blockchain with unique names, facial expressions, body features, fur color, eye color, fur patterns, and more. Collecting different kitties and gaining ownership of these NFTs is the point of the game. Buying and selling of these NFTs happen in cryptocurrencies based on the rarity of the tokens.
How NFTs are Changing the Digital Art World
NFTs have taken the digital art world by storm because it gives opportunities to digital creators to convert their “one-of-a-kind” artworks or masterpieces into tokens and showcase their talent to their audience. Put simply, NFT has transformed the way art is created by artists and consumed by the audience. Let’s take a look at the ways NFTs revolutionized the digital art space.
Authenticating ownership rights – Most NFTs or digital representations of unique artworks reside on Ethereum’s blockchain containing unique data. This valuable information stored in the NFT verifies and validates the ownership of the NFT creator, facilitating the transfer of ownership or tokens in the NFT marketplace.
Expansion of art in the digital realm – NFT is not only limited to digital artists because sculptors and painters can also create NFT for their unique pieces of creation and sell them. In short, it is changing the lives of artists by opening up new income-generating opportunities. Musicians, photographers, sports enthusiasts, and gamers, can also drive massive sales by exhibiting their unique talent in the digital format to a new and eager crypto audience.
Increasing Participation – Earlier displaying of unique artworks was for the elite class who have the means and privilege to attend art galleries, auction houses, and exhibition centers. But now, anyone can become an art collector and collect masterpieces from a mobile or desktop with an internet connection. So, it can be said that decentralized NFT marketplaces promote wider participation by art lovers by breaking down geographical boundaries. Artists and collectors connect directly on global platforms without any need for intermediaries.
Creating Revenue Streams – The NFT market extends to wide horizons and directions, with a major avenue being the art collection. The distinctive value of a token sets its price in the market for which it can be bought by art collectors in the same way other physical assets like real estate property, cars, etc are traded. Through the extension of art into the virtual realm, NFTs are opening up limitless possibilities for creators to capitalize on their work, earn worldwide recognition, and get appreciated at the same time.
Establishing permanence and immortalization of art – Most physical artworks have a certain lifetime as their non-durability is a serious issue. However, with the introduction of NFT, this problem is eliminated because minting NFTs immortalizes the artworks in the blockchain, thus assuring its permanency and legitimacy. It also gives the artists peace of mind that their digital art is preserved and protected forever on the blockchain.
Key Elements of NFT Development
No wonder NFTs have widened the scope for revenue generation for digital creators by allowing proof of ownership for their virtual art pieces. But before you proceed with NFT development, first, understand the basic elements or features that make up a non-fungible token and are integral to its development project.
Ownership – The possession right of NFT lies in the hands of the NFT creator. It is the most important attribute of NFT development. One NFT can be owned by a single person. When you sell your NFT, the ownership gets transferred to the buyer.
Uniqueness – Each NFT has unique identification codes which are stored in the blockchain in the form of tokens. The distinct attributes of an NFT make it unique and different from other tokens in the marketplaces. It cannot be exchanged for other tokens because it is difficult to find another NFT having the same properties and value.
Indivisibility – Another key element of NFT is that NFTs cannot be divided and their value can’t be split, otherwise, the purpose will not be fulfilled. NFT is like a flight ticket that cannot be divided between two or more people.
Scarcity – NFT developers have the power in their hands to control the quantity of NFT supply in the market and influence the market value of their tokens. They can either create as many assets as they want or can limit the quantity and make it a scarce asset.
Transparency – NFTs marketplace is a very transparent platform where buyers and sellers trust each other and buyers buy tokens after verifying the legitimacy of a specific NFT. NFTs selling is possible after token issuance and transfer of ownership are publicly confirmed.
NFT Standards: ERC-721 vs ERC-1155
Ethereum has topped the list of open-source blockchain networks for the development of NFT, smart contracts, and decentralized applications. The major reason for Ethereum’s emerging popularity is its availability of token standards that support blockchain developers in building innovative applications. ERC-721 and ERC-1155 are the two most popular and noteworthy token standards that are tied to the process of NFT development.
What are ERC token standards?
ERC or Ethereum Request for Comments is a technical standard or documentation of Ethereum-based tokens providing specifications for the functions, traits, methods, research, and innovation for users or a group of participants in the Ethereum ecosystem. Anyone can create an ERC standard, but it’s accepted by Ethereum’s development community only after review, feedback sharing, and revision process.
ERC-721 Token Standard – This game-changing ERC token standard has been the cornerstone for NFTs in the Ethereum ecosystem. With a standard interface, it sets the right foundation or basis for the creation of non-interchangeable tokens. For example, you can create a unique personalized avatar with this token. This ERC-721 standard plays an important part in bringing your unique NFTs or digital assets to the public.
ERC-1155 Token Standard – This standard was introduced in 2018 as a multi-token standard providing smart contracts with a standard interface to encompass multiple tokens or assets. The primary motive for creating this token standard is to overcome the challenges blockchain developers face for Web 3 game development. ERC-1155 increases the efficiency of ERC-721 by correcting implementation errors and also lowers transaction costs.
ERC-721 Vs ERC-1155: Comparison
How to Create an NFT: Step-by-step Guide
NFT can be created by anyone having some cryptocurrencies directly on the NFT marketplace or crypto exchange platform. This segment of this article discusses the process of minting NFTs, uploading them to the blockchain, and listing it for sale. Follow this step-by-step guide to develop or mint an NFT from scratch.
Step 1: Deciding what to create
Any type of digital artwork can be converted into an NFT and this can be anything from an image, video clip, gif, avatar, or audio clip. At first, an NFT creator must decide what type of artwork he or she wants to create to be sold in the marketplaces.
Step 2: Choosing a blockchain
The selection of a blockchain network is an essential step in the NFT creation process because your NFTs will be stored on the chosen blockchain. The most widely used blockchain for NFT development is Ethereum where NFTs are minted using ERC-721 and ERC–1155 standards. Besides Ethereum, other blockchains – Polygon, Flow, and Solana are also utilized to keep records of NFTs permanently.
Step 3: Set up the NFT wallet
After deciding on the blockchain for your NFT, you are required to set up a crypto wallet to store and seamlessly trade your tokens in the marketplaces. Most NFT marketplaces have cryptocurrency wallets integrated into the platform and all you need to do is to set up your account by entering details and storing private keys. The most popular crypto wallet applications supporting multiple blockchains that are used for NFT trading are Metamask, Coinbase, Phantom, and Ledger Nano X.
Step 4: Buy crypto coins through an exchange
Merely setting up a crypto wallet is not enough for creating NFT because you need to pay gas fees to mint your NFTs. So, you need to buy some cryptocurrencies from reputable crypto exchanges like Coinbase, Binance, Crypto.com, Kraken, etc. You need to buy digital currencies like Ethereum or Solana based on your blockchain where you are minting your NFT.
Step 5: Selecting an NFT platform
There are dozens of NFT marketplaces where you can create NFT with ease and also list them for sale. Some remarkable NFT platforms include OpenSea, Solanart, Binance NFT, Crypto.com, Rarible, CryptoPunks, and WazirX. While picking any marketplace you should check the platform features properly and also see whether it focuses on NFT development in your niche. The various types of NFTs that these popular platforms support are art collectibles, music, gifs, domain names, trading cards, sports, collectible characters, in-game assets/ weapons, metaverse, and 3D art.
Step 6: Creating the Non-fungible Token (NFT)
The process of token development is pretty straightforward once the blockchain and NFT platforms are decided. Here’s an easy example of NFT creation on OpenSea.
- Open the Opensea marketplace and click on the wallet icon to pick a suitable crypto wallet and proceed to the verification of the wallet.
- Click on the “Create” tab in the top right corner of the OpenSea platform to start creating a new item. You will be taken to the “Create New Item” section where you can upload the file, enter a name, and description, and add external links to your social media handles or portfolio website.
- After uploading your media file and entering all the information of your NFT, you will be directed to the next tab where you have to select the blockchain on which your NFT will reside. In OpenSea, you will be asked to list your NFT supply i.e. the total quantity or numbers of NFT you want to sell. For blockchain selection, OpenSea by default takes Ethereum, but you can also choose Polygon to mint your token.
- In the end, simply select the “Create” button located at the bottom and your NFT will be created. A pop-up appears confirming that your NFT has been created which can be shared instantly via a link or your social media profiles.
Top NFT Marketplaces: Where to Buy and Sell NFTs
Here we have handpicked the top-rated and most popular NFT marketplaces, both free and paid, where users can seamlessly buy and sell NFTs, set up auctions for their unique digital artworks, and store NFTs.
OpenSea – Launched in 2017, OpenSea is the oldest and also the largest marketplace active in the world to date. The common NFTs that this platform hosts include art, photography, music, trading cards, sports, virtual worlds, domain names, and utility. Although it has no upfront or minting fee, it charges a 2.5% marketplace fee per transaction or sale. The core blockchains used on OpenSea are Ethereum, Polygon, Solana, and Klatyn with token support of ERC-721 and ERC-1155.
- Founded: 2017
- Blockchain: Ethereum, Polygon, and Solana
- Token Support: ERC-721 and ERC -1155
- Wallet: Metamask, WalletConnect
- Smart Contract Import: Yes
- Fees: 2.5% platform fee for each sale + Lazy minting
Split Payment Support: No
Rarible – On Rarible, NFTs creators can create digital art, in-game assets, photography, and metaverse with Ethereum, Polygon, Flow, and Tezos. With a minimal gas fee and a trading fee of 2.5%, Rarible is the nearest competitor to OpenSea with great platform features and payment methods, supporting more than 20 digital wallets. Another exceptional attribute of the Rarible marketplace is that it allows transactions in fiat currencies as one can buy NFTs using credit cards.
- Founded: 2020
- Blockchain: Ethereum, Polygon, Flow, and Tezos
- Token Support: ERC-721 and ERC -1155
- Wallet: Metamask, WalletConnect, Coinbase, Fortmatic, MyEtherWallet
- Smart Contract Import: Yes
- Fees: 2.5% marketplace fee + Gas fee
- Split Payment Support: No
Binance NFT – In recent times, Binance NFT has also become a premier destination for digital artists and NFT collectors to buy and sell digital collectibles, gaming assets, sports, entertainment, etc. This groundbreaking marketplace, founded in 2021, is powered by Binance blockchain and Binance token support. With a 1% transaction fee and multi-wallet support, this NFT platform is very easy to use. The wallets that it supports are the Binance chain wallet, Metamask, MathWallet, and TrustWallet.
- Founded: 2021
- Blockchain: Ethereum
- Token Support: Binance Token
- Wallet: Binance chain wallet, Metamask, MathWallet, and TrustWallet.
- Smart Contract Import: Yes
- Fees: 1% transaction fee
- Split Payment Support: No
Crypto.com – It is a highly-curated NFT marketplace with the crypto.org chain as its blockchain network. It is another major industry player that entered the NFT space in 2016 with all types of token support and payment methods. The fees on Crypto.com stands at 15% for primary listing. The types of tokens that are bought, sold, and traded in this marketplace are artworks, music, sports, in-game assets, celebrity posters, video clips, etc.
- Founded: 2016
- Blockchain: Crypto.org chain
- Token Support: All types of tokens
- Wallet: All major payment methods
- Smart Contract Import: Yes
- Fees: 15% fee for primary listing
SuperRare – SuperRare is a favorite choice of most digital artists looking for a unique NFT exchange platform to trade their single-edition masterpieces. Each artwork on SuperRare is traced on the Ethereum blockchain and secured by cryptography. The wallets it supports are Metamask, Wallet Connect, and Fortmatic. However, the fee is comparatively higher than other platforms as it charges 3% as a purchase fee and a separate gas fee. The gallery receives a commission of 15% on its first sale. Another disadvantage is that all transactions need to be made in Ether, which is Ethereum’s native cryptocurrency.
- Founded: 2016
- Blockchain: Ethereum
- Token Support: ERC-721 and $RARE Token
- Wallet: Metamask, Wallet Connect, and Fortmatic.
- Smart Contract Import: Yes
- Fees: 3% Purchase Fee + Gas Fee + 15% commission on first sale
Choosing the right NFT marketplace is crucial if you want your NFT to gain maximum exposure and draw the attention of passionate collectors. You can also seek the professional services of NFT marketplace development companies to build your own marketplace. The two important considerations while selecting an NFT marketplace are blockchain network and token support. While some offer multi-token support, some are required to use a platform-specific proprietary token within a closed marketplace. So, make sure to choose one that suits your NFT trading and storage needs properly.
Use Cases of NFTs Beyond Art
NFTs have been in the news in the past few years for their popularity and use in the digital art world in the form of artwork and collectibles. However, you will be surprised to know that NFT’s potential extends way beyond these art collections. Since it can be used to authenticate ownerships of myriad asset types, including real-world assets, it opens up new opportunities to investors.
Tokenizing physical assets like real-estate properties, event tickets, software licensing, etc. aids in curbing fakes and establishing sole ownership over the asset. Below are a few use cases of NFT beyond certifying digital art.
Real estate – The real estate sector, with the power of NFT, can represent ownership and digitize records of their physical properties and utilize smart contracts to eliminate the need for escrow or third-party involvement. Earlier, proof of ownership and transfer of properties was executed through deeds and agreements involving a lot of paperwork. This could be avoided easily by tokenizing real-world properties and creating digital twins. NFTs streamline the process of buying, selling, and renting real estate properties and at the same time, reduce fraud.
Decentralized Finance (DeFi) – NFTs are revolutionizing the finance and banking industry by representing diverse assets like loans, insurance, etc. NFT integration enhances security and transparency with the help of DeFi applications. For example, banks can mint unique NFTs for their account holders where credit ratings and account balances will be specified. Therefore, when anyone seeks a loan from other banks, this NFT can be used to verify the person’s creditworthiness and income without disclosing personal information.
Government – NFTs make it easier for the government to verify the identifications of the voters without requiring any physical documentation. Voters cast their votes using NFTs on the blockchain which is a verified public ledger. This ensures every voter has easy access to vote from anywhere, thus preventing possibilities of fraud or cheating in the voting process. In short, the introduction of NFTs has simplified the voting system and made it secure, convenient, and accessible for every voter.
Event Ticketing – Another obvious and impactful use case of NFT which is gaining attention is its use in the ticketing industry. NFTs are combined with electronic tickets to create a more secure and compelling ticketing experience for the buyers. NFT-based tickets prevent counterfeiting as they are verifiable and help event organizers gain better control over the primary and secondary markets. They can even get information about the attendees through their NFTs and use it to stay connected with them after the event and update them regarding upcoming events.
Web3 Identity – NFTs are also used to produce decentralized digital identities to provide users with enhanced privacy and security while accessing online services through Web3 browsers, DEX applications, and other Web3-based platforms. With data breaches on the rise, traditional methods of identity verification often involve sharing sensitive information. However, NFTs offer a solution by allowing individuals to verify their identity without compromising personal details. This innovative and secure approach to identity authentication mitigates all types of risks associated with traditional verification methods.
Earlier NFTs were considered synonymous with digital art and games, but now as you can see, their capabilities extend far beyond these basic use cases. With new potential and purposes being unveiled from identity verification to tokenizing real-world properties, a growing number of investors, startups, and scaleups, are integrating NFT-based solutions into their businesses.
Blockchain Technology in NFT Development
Blockchain and NFT – what’s the link between the two? Well, the answer to this question is that the existence of NFT is possible only because of blockchain technology. NFTs are part of the blockchain, an open-source public distributed ledger system used for storing information and recording transactions. Just like blockchain supports fungible tokens like Bitcoin and ETH coin with ERC-20 token standard, non-fungible tokens (NFTs) can also be minted on Ethereum Blockchain with token standard support ERC-721 and ERC-1155.
Although the Ethereum blockchain was the first to be widely used for NFT development, other blockchains like Solana, Tezos, Polygon, TRON, Flow, and EOS are also used nowadays by NFT marketplaces. When an NFT is held on the blockchain, it records its information and verifies the ownership status using smart contracts. After minting NFT, when the creator sells it, a unique “Token” of distinctive value is created which cannot be duplicated or tampered with. The buyer who pays for the token only possesses the original work.
Thus, the emergence of NFT is a significant advancement in the digital realm where irrefutable evidence of digital ownership is possible. And the application of blockchain technology assures trustless security to the ownership and transfer of assets.
Security Considerations for NFT Development
Any technological advancement comes with certain risks and NFT is no exception. There are some potential security issues associated with NFT development that need to be addressed first. Creators and investors are skeptical whether NFTs are safe and the reasons for such doubts are many. Let us discuss the security vulnerabilities, risks, and challenges that come with NFTs.
Asset Ownership – One of the most important vulnerabilities is that NFT challenges the notion of true ownership of virtual assets. Since NFTs are stored on the blockchain with a web link of the image or identification codes rather than the image, buying an NFT will give you access to the image but not the actual image. So, the image ownership of the buyers is dependent on the marketplace’s longevity. If the platform goes out of business, you would lose access and the NFT will lose its value.
Security Risks in NFT Platforms – NFT marketplaces facilitating NFT transactions pose critical vulnerabilities to the security of the NFTs stored there. The tokens or digital assets are accessed with private keys which are susceptible to compromise and can lead to loss of NFTs. Although marketplace security measures are enforced, user-related risks like a lack of two-factor authentication and weak passwords contribute to asset losses.
Identity Fraud – NFTs also face a significant security concern related to identity theft and cyber threats. A recent case of identity fraud came to the notice of people when bulk emails impersonating Coinbase were sent to the users. The emails deceive the users asking them to provide their login credentials which ultimately compromised their NFT platform accounts and exposed them to malware attacks.
Smart Contracts Risks – Smart contracts are the foundation of NFT development but at the same time are responsible for substantial security vulnerabilities in the NFT marketplace. One such instance is the Poly network attack where hackers stole nearly 600 million dollars. Another incident that further accelerated fear in NFT users is the case of CryptoPunks in 2017 where a bug affected the platform and prevented the transfer of ETH coins to the seller’s wallet. This gave way to attackers using the wrong means to buy NFTs and retrieve the money back from the contract.
Despite the setbacks regarding security concerns, it would be unreasonable to dismiss NFT as a progressive advancement and ignore its uniqueness and potential to revolutionize the art world. Instead what you need to do is comprehend the vulnerabilities better and seek solutions to eliminate these risks. Deepen your knowledge and utilize tools to monitor and prevent suspicious activities.
Future of NFT Development: Trends and Predictions
The NFT space thrived unexpectedly, particularly in 2021, when trading volumes in the third quarter hit $10.67 billion, as per the Analytics platform DappRadar report. The rise was by 704% from the last quarter. So, you can imagine where the future of NFT is heading.
As of now, NFT revolves around artwork, crypto assets, and gaming. However, the road ahead welcomes more use cases of NFT in other fields like finance, real estate, government, media, and many more. Once you start studying the business opportunities and revenue-earning possibilities of non-fungible tokens, it’s hard to limit your research because its potential is much wider than what you can imagine at the moment. From intellectual property rights to identity verifications and music trading to ticket tokenization, NFT makes it possible for anyone to do instant business with others while sitting in other parts of the world.
Furthermore, it is expected to become an integral component of the Metaverse space in the upcoming days, where users can interact with others with their 3D avatars in a shared and persistent virtual world. Metaverse platforms like Decentraland and The Sandbox have already started to utilize NFTs for in-game item purchases and virtual lands. Social media giant Meta and popular brands like Nike, Adidas, and Samsung have embraced Metaverse and NFTs to enhance their customer experiences and more companies are expected to follow the trend soon.
The Bottom Line
Undoubtedly, NFT is the most promising innovation that is worth paying attention to. And its recent surge in type, number, and value, makes it evident that NFTs are being used by more and more people across all types of industries. The rising popularity of NFTs breeds new paths for investment and income generation. As a result, many businesses of varied industry verticals are seen entering the NFT ecosystem.
While more applications of NFTs are still evolving, you must take the opportunity to explore this exciting concept, understand blockchain, and get started with NFT development to explore its potential. We are a leading NFT development company and can assist you with the creation of a one-of-a-kind NFT with effortless minting and distribution in reliable NFT marketplaces. If you have any queries about our services, we are just a call away!