One article to understand NFT (non-fungible token)

definition

The full name of NFT is non-fungible token, which is a digital token on the blockchain. Each token has a unique subject matter, such as digital artwork, special game items, rare card collections or any other unique digital/physical assets.

NFT is the latest emerging blockchain asset, which goes beyond the scope of cryptocurrency, stablecoin, governance token and utility token, provides users with brand-new digital assets, and innovates the ownership and issuance model. ‍

This article will explore the definition of NFTs, the rapid development of the NFT collectible economy, and the different types of NFTs including art and games. In addition, the article explores the importance of verifiable random numbers for creating dynamic digital collections and guaranteeing their verifiable rarity.

Definition of “non-homogeneous”

“Homogeneity” means that every asset is identical, interchangeable and divisible. The homogenized assets we use in our daily lives include dollars, bitcoins, and points issued by companies. And “non-homogeneous assets” means that each asset is unique and completely independent of each other. For example, real estate is a non-homogeneous asset, and each real estate is unique in its layout, size, location, land use planning, utilities, and valuation. ‍

The non-fungible token (hereinafter referred to as NFT) further expands this concept of “non-fungible”, using blockchain networks such as Ethereum to represent unique physical or digital assets. The ownership of NFT is verified and traced through the public blockchain network, and users can verify the authenticity of each NFT and trace the source. Therefore, the real definition of NFT should be: a “certificate of authenticity” issued by the original creator on the blockchain to prove that the holder of the NFT is the real owner of the official underlying asset through encryption technology. ‍

NFTs have many values, such as allowing artists to monetize their artworks, creating verifiable scarcity game items for games, creating a digital collection ecosystem, and tokenizing real-world assets to improve liquidity, etc.

The development history of NFT economy

After the release of CryptoKitties in 2017, NFT entered the public eye for the first time. Ethercat is a decentralized application released on Ethereum, where users can breed and collect various electronic cats in the game. However, in 2021, NFTs have become popular again, this time attracting many collectors and artists. ‍

Most of the homogenized tokens use the ERC20 standard, while NFTs usually use the ERC721 standard. ERC721 is a templated smart contract that specifies how NFTs interact with other smart contracts and users. The ERC721 standard has accelerated the development and release process of new NFTs, and has spawned various NFT trading markets such as Rarible, OpenSea, and SuperRare. In the NFT market, users can easily hang out and trade NFTs, which greatly promotes the development of the NFT ecosystem. The volume of NFT transactions in these markets continues to rise, accumulating more than 100,000 active users at the time of writing, with monthly transactions exceeding $1 billion.

One article to understand NFT (non-fungible token)

OpenSea (NFT marketplace) has seen a huge increase in trading volume in recent months, with daily trading volume topping $60 million (source)

The recovery of the NFT market is like a “Cambrian explosion of life”, which has spawned various unique applications.These applications leverage the innovative potential of NFTs, often with the goal of increasing the efficiency of asset ownership transfers, reducing reliance on intermediaries and preserving as much value as possible to authors and markets.However, NFTs are still in the early stages of development, so there are many opportunities for innovative developers, talented artists and traditional institutions to issue their own NFT assets on the chain.

In-depth analysis of various NFTs

NFTs can provide a flexible framework, use blockchain networks to track ownership of various digital and physical assets, and enrich the functions of assets through various innovative mechanisms. The use cases of NFT are constantly emerging, and some common use cases will be shared below.

Digital artwork NFT

The most talked about NFT use case is the ownership of digital artwork tokens. Artists can turn their works into tokens and monetize them, and potential customers in various markets around the world can purchase these works simply by connecting to the Internet. The traditional art market usually lacks transparency and is full of intermediaries to extract value from it. Not only the purchase threshold is high, but also a large intermediary fee is paid. In contrast, NFTs can be linked to an online marketplace that can be accessed from anywhere without permission. Plus, all secondary market revenue goes into the creator’s pocket. ‍

The most widely known NFT artwork is “Everydays: The First 5000 Days” by digital artist Beeple. The work is a collection of 5,000 photos that Beeple has taken over the past 13 years. This work was made into NFT and released on Ethereum, and sold for a high price of more than 69 million US dollars. Beeple adopts the popular ERC721 token standard to directly monetize digital artworks and prove that NFT is genuine through encryption technology. In addition to this work, thousands of different NFT art collections have been released and sold around the world.

Game NFT

NFTs are the foundation of blockchain gaming and can tokenize, track and transfer unique game items without escrow.The publishers of traditional online games are usually centralized entities, who fully control the distribution, ownership, and attributes of game items, which often determine the value of game characters and game outcomes. If the game publishing company goes out of business, users lose all game items that they may have accumulated over hours, days, weeks, or even longer. ‍

NFT not only ensures that users have complete control over their game items, but also enables a new gaming experience.Such as issuing random NFT rewards in blockchain games and creating interoperable Metaverses where items from one game can be used and traded in another game. Not only that, NFT has also promoted the development of the P2E (play-to-earn) model, where users can harvest rare NFTs in the game and sell them to other players, so as to realize the time and energy they have invested in the game. . ‍

Axie Infinity is one such NFT-based blockchain game. The game creates a world of Pokemon inhabited by fantasy creatures called “Axies”. Each Axie is bound to an NFT, which contains metadata such as character attributes, appearance, and ownership. Chainlink VRF will provide verifiable random numbers for games and issue verifiable scarcity Axie sprites (such as Quad Mystic) in a fair and verifiable way, which can make the game experience in the Axie world richer and more interesting.

NFT Collection

NFTs are essentially similar in nature to collecting physical cards or philately, and will give rise to entirely new types of digital collectibles. Collectors can buy digital items they deem valuable, or show their support for a company, brand, game or artist. Physical collections are slow to ship and expensive to maintain. In contrast, NFTs have limitations in none of these aspects. NFTs are digital collections that can change hands in seconds and never depreciate. ‍

The current hottest NFT series is CryptoPunks, which contains 10,000 unique pixel-style characters. These NFTs are generated algorithmically, so no two NFTs are exactly the same. CryptoPunks are the first NFTs to appear and are distributed to users for free. This project continues to attract a large number of users who want to witness the early history of NFT development. ‍

NFT collections are increasingly being used as account avatars on social media platforms such as Twitter and Discord.Doing so also sends a strong signal for like-minded people to use NFTs to showcase their personal style and find their own group. It is worth mentioning that because NFTs are stored on the blockchain, users can prove to others that they really own the picture in the avatar through encryption technology.

Music Album NFT

Blockchain gives musicians the opportunity to turn their creations into NFTs to boost revenue and build their own fan base. Since the outbreak of the epidemic, music industry revenue has fallen by 85%, so generating income through NFTs allows artists to make up for the losses caused by the epidemic, while providing fans with special benefits, such as limited edition souvenirs or even one-on-one exchanges with artists. ‍

Musicians such as 3LAU, Kings of Leon, Shepard Fairey, and Eminem have all released their own NFT albums and raked in millions of dollars. Therefore, NFT provides a more innovative and interactive way for artists to give back to their fans, and more effectively helps artists to expand their fan base.

Real estate NFT

NFTs can also represent ownership of real-world assets such as real estate and inject more liquidity into these differentiated markets. Representing real-world assets with tokens can greatly improve the efficiency of ownership transfer, and provide authoritative sources of facts to verify the authenticity of personal qualifications and assets. In addition to this, we can also turn other real-world assets into tokens, such as paintings, government documents, warrants, and degree certificates. ‍

While real-world asset tokenization is still in its early stages of development, it has enormous application potential. For example, using rent as collateral to issue real estate tokens, and issuing digital certificates without marking any physical documents. In addition, records such as degree certificates and intellectual property contracts can be digitized to increase transparency and create new automated processes.

The importance of verifiable random numbers for NFTs

A single digital artwork NFT can pre-set all attributes before going on the chain, but there are also many NFTs that need to be connected to a random number generator (RNG) to determine their rarity. Cases where random numbers are applied to NFTs include: randomly assigning attributes to NFT artworks, determining the location of NFT treasure chests in the game, and ensuring the fairness of popular limited-edition NFT airdrops. ‍

However, if the source of random numbers is manipulated, malicious actors may exploit the loopholes for personal gain.For example, they may mint the rarest NFT for themselves, or manipulate the lottery program to win the lottery. This can have a serious impact on the value of the NFT, as users cannot verify that the properties and assignments of the NFT are truly random. Since smart contracts cannot generate secure random numbers on their own, sophisticated oracle solutions are required.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/one-article-to-understand-nft-non-fungible-token/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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