In recent years, NFTs have established themselves as a major pillar in the digital asset market. They initially shot to popularity in 2020 after creating quite the buzz in the virtual art sphere as well as the gaming industry. Now, institutional adoption is on the rise and lesser-known NFT-use cases have begun to gain traction. In spite of this, many are lost on what exactly these assets are and what you can do with an NFT. Some still view NFTs as speculative investment, while others are exploring the practical uses of these assets beyond the art world.
Non-fungible tokens (NFTs) are unique digital assets that cannot be replaced with a counterpart of equal value, unlike fungible assets like cryptocurrencies. NFTs have a one-of-a-kind cryptographic signature that sets them apart from other assets. As such, while one BTC token can easily be swapped for another, this is not true for non-fungible tokens. Each NFT represents a specific item or asset, such as a piece of art or a virtual real estate asset, and cannot be divided into smaller units like a cryptocurrency can. They also cannot be replicated making them highly valuable.
NFTs exist on a blockchain, which is a distributed digital ledger that records transactions across a network of computers. The blockchain is transparent and tamper-proof, meaning that once a transaction is recorded on the blockchain, it cannot be changed or deleted. Creators roll out NFTs using a specific type of blockchain technology called a smart contract. This smart contract is programmed to include information about the NFT, from its ownership to its uniqueness, transaction details, and any other relevant data.
Regarding the question of what you can do with NFTs, this really depends on the creator. Non-fungible tokens can be used to represent a variety of real-world and digital assets on the blockchain. Artists initially used NFTs to represent digital assets like artwork and music. However, they have since been used to tokenize tangible assets like real estate, and luxury goods. Here are some of the top NFT use cases;
As an artist, you can use non-fungible tokens (NFTs) to create and sell your digital artwork. This includes still images, animated GIFs, short movies, and even one-of-a-kind NFT art pieces. Unique digital creations like these have captured the attention of collectors and investors, with some NFTs fetching record-breaking prices in the millions of dollars.
NFTs are used to create and sell unique digital collectibles, including digital art, trading cards, and other unique items. These items can be bought and sold on NFT marketplaces, with ownership and authenticity verified through the blockchain. NFTs provide a new way for collectors to own and trade rare and one-of-a-kind digital items, with the potential for significant value appreciation over time.
NFTs have built a significant reputation in the gaming industry, where they are primarily used to represent in-game items and other virtual assets. In NFT-driven play-to-earn (P2E) games, players can own in-game assets like skins, weapons, characters, and virtual land in the metaverse, and trade them to earn financial rewards. A prime example of this is Axie Infinity, a blockchain-based game where players collect, breed, and battle fantasy creatures called Axies, each represented by an NFT.
In the past year, this application of non-fungible tokens has grown in popularity, especially among large companies. Utility NFTs are a type of non-fungible token that represent digital assets that have a specific purpose or function beyond just being a collectible item. They can be used to unlock certain features or content within an application, such as exclusive access to a game or membership to a community.
In addition to the aforementioned use cases, NFTs can represent virtual real estate, unique domain names, identity verification, event tickets, fashion and wearables, and music. These use cases allow for secure and verifiable ownership, investment, and access to various digital assets and experiences.
If you’re wondering what you can do with NFTs, here are your options:
The NFT market can credit a good part of its success to a blend of scarcity and exclusivity. Collectors are willing to pay premium prices for rare items, as such a limited supply of tokens helps drive up the value of NFTs. The market also benefits from the ability to verify ownership and authenticity through the blockchain.
Notably, the NFT industry took a big hit from last year’s crypto winter, recording a significant drop in sales. The FOMO-fueled hype around exclusive tokens died down, in a way helping to speed up the maturation of the asset class. Investor focus has instead shifted to NFTs that offer value outside of themselves.
Non-fungible tokens first appeared in the tech world shortly after Bitcoin was created, and people began exploring how the blockchain could support virtual assets other than BTC. NFTs debuted on the Bitcoin blockchain, as colored coins in 2012/2013 as colored coins. These tokens represented ownership of physical assets and collectibles but were limited by the need for agreement among involved parties.
After colored coins came Counterparty, a peer-to-peer marketplace, and financial platform. It launched Spells of Genesis, the first blockchain-based game, in 2015 and went on to release more games. However, the more marked occurrence was the launch of Rare Pepes on Counterparty in 2016. These digital trading cards featured the popular internet meme character Pepe the Frog. What made them significant was the level of community involvement as they were a sort of an inside joke among crypto enthusiasts. The unique and limited supply of Rare Pepes, as well as the high demand from the community, pushed them to the top of the NFT market, with some selling for thousands of dollars.
CryptoPunks is considered one of the earliest and most influential NFT projects. Launched in 2017 by Larva Labs, it consists of 10,000 unique 8-bit pixel art characters, each with its own distinct features and attributes. CryptoPunks helped establish the concept of digital ownership and scarcity in the NFT space and set the standard for subsequent NFT projects.
Another early and influential NFT project, CryptoKitties, was also launched in 2017 by Axiom Zen. CryptoKitties is a blockchain game that features a collection of digital cats that can be bred and traded, with each cat having its own unique set of attributes. The popularity of CryptoKitties caused significant congestion on the Ethereum network, highlighting some of the scalability issues that needed to be addressed in the NFT space.
Bored Ape Yacht Club (BAYC) is a collection of 10,000 unique, hand-drawn apes with varying traits and features. Launched in 2021, BAYC has become one of the most popular and valuable NFT projects, with some apes selling for millions of dollars. BAYC has also introduced the concept of 'membership' NFTs, which provide holders with exclusive access to community events and merchandise. The success of BAYC has shown the potential for NFTs to create and sustain online communities.
Table showing the top five NFT projects by trading volume (Source: Coinmarketcap)
What can I do with NFT tokens?
You can buy, sell, and trade NFTs on various marketplaces or hold onto them as digital assets.
How do I buy an NFT?
As stated earlier, you can buy NFTs on various marketplaces and platforms such as OpenSea, Rarible, and Nifty Gateway. To buy an NFT, you will need a cryptocurrency wallet and the necessary cryptocurrency to complete the purchase.
How do I know if an NFT is authentic?
NFT authenticity can be verified through various means such as checking the creator's reputation, examining the smart contract, or using blockchain explorers to track ownership history.