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A non-fungible token (NFT) is a unique entry on a blockchain. NFTs are not mutually interchangeable and thus are not fungible. An NFT is created by uploading a file, such as an artwork, to an NFT auction market. This creates a copy of the file, which is recorded as an NFT on the digital ledger. The NFT can then be bought with cryptocurrency and resold. NFTs are used to commodify digital items, such as digital art, video game items, or music.

Since one of the earliest NFT art projects was created in 2017, as of 2021 NFTs have grown to become a speculative market. There has been some concern over the carbon emitted per NFT transaction.

Description

A non-fungible token (NFT) is a unique digital file stored on a blockchain (a digital ledger). An NFT is a cryptographic token, but unlike cryptocurrencies such as bitcoin and many network or utility tokens, NFTs are not mutually interchangeable, i.e. not fungible. An NFT is created by uploading a file, such as an artwork, to an NFT auction market, such as KnownOrigin, Rarible, or OpenSea. This creates a copy of the file recorded on the digital ledger as an NFT, which can be bought with cryptocurrency and resold. This results in a market where the NFT can go up or down in value, but the owner does not have exclusive access to the file; NFTs representing media have been analogized to autographs. A person who uploads a certain work as an NFT does not have to prove that they are the original artist, and there have been numerous cases where art was used for NFTs without the creator's permission.

Uses

The unique identity and ownership of a non-fungible token is verifiable via the blockchain ledger, creating artificial scarcity of the digital file. NFTs are also used to create the possibility of asset interoperability across multiple platforms.

Digital art

Art was an early use case for NFTs, because of the purported ability of NFTs to provide proof of authenticity and ownership of digital art, which, unlike physical art, does not have a preexisting means of recognizing authenticity. Although an artist can sell one or more NFTs representing a work, the artist can still retain the copyright to the work represented by the NFT.

Games

NFTs can also be used to represent in-game assets which are controlled by the user instead of the game developer. NFTs allow assets to be traded on third-party marketplaces without permission from the game developer.

Standards in blockchains

Specific token standards have been created to support the use of a blockchain in gaming. These include the Ethereum ERC-721 standard of CryptoKitties, and the more recent ERC-1155 standard. Token standards also exist on other blockchains that support NFT like Bitcoin Cash and FLOW blockchain.

Ethereum

ERC-721

ERC-721 was the first standard for representing non-fungible digital assets on the Ethereum blockchain. ERC-721 is an inheritable Solidity smart contract standard, meaning that developers can easily create new ERC-721-compliant contracts by importing it from the OpenZeppelin library.

ERC-1155

ERC-1155 brings the idea of "semi-fungibility" to the NFT world, as well as providing a superset of ERC-721 functionality (meaning that an ERC-721 asset could be built using ERC-1155).

Bitcoin

"NFT1" was introduced onto the Bitcoin Cash blockchain in 2019 as part of the Simple Ledger Protocol (SLP) token structure. You can use the protocol to support non-fungible tokens by minting a non-divisible token supply of 1 without a minting baton, called a simple NFT. The specification codifies a more capable type of NFT that allows grouping of many NFTs together, called NFT1.

Flow

On the Flow blockchain, created by the team behind Cryptokitties, the Cadence programming language represents each NFT as a resource object that users store in their accounts. Resources have important ownership rules that are enforced by the type system. They can only have one owner, cannot be copied, and cannot be accidentally or maliciously lost or duplicated. These protections ensure that owners know that their NFT is safe and can represent an asset that has real value.

History

In June 2017 CryptoPunks were released as the first non-fungible tokens on the Ethereum blockchain by American studio Larva Labs, a two-person team consisting of Matt Hall and John Watkinson. Then, MoonCatRescue became the second non-fungible token project, which flew under the radar, but eventually took off on March 12, 2021. In late 2017 another project called CryptoKitties was released and went viral and subsequently raised a $12.5 million investment.

In 2018, RareBits, an NFT marketplace and exchange, raised a $6 million investment. Gamedex, a collectible cards game platform made possible by NFTs, raised a $800,000 seed round. Decentraland, a blockchain-based virtual world, raised $26 million in an initial coin offering, and had a $20 million internal economy as of September 2018. As of 2019, Nike holds a patent for its blockchain-based NFT-sneakers called ‘CryptoKicks’.

Dapper Labs, in partnership with the NBA, launched a beta version of their NBA TopShot collectible and tradable NFT-based app in the first half of 2020, which they had been working on since 2018. It sells tokens in packs which they say contain multimedia and data smashed together. On October 1, 2020, it was announced that they had exited the beta and opened to all fans. As of February 28, 2021, Dapper Labs was reporting over $230 million in gross sales in the app.

In August 2020, the Museum of Crypto Art (MOCA) made history for what was at the time the largest-ever purchase on NFT art marketplace Nifty Gateway, acquiring "Picasso's Bull" by artist Trevor Jones for $55,555.55 worth of Ether — a sale that Nifty Gateway described as an important milestone in the art world that validated NFTs as a new medium of art. MOCA placed #20 in the Cointelegraph's top 100 most notable people in Blockchain 2020.

In February 2021, the musician Grimes sold around $6 million worth of tokens representing digital art on Nifty Gateway. Later in February of 2021, an NFT representing the meme animation Nyan Cat was sold in an internet marketplace for just under US$600,000. The American digital artist Beeple's work "Everydays: The First 5000 Days" was the first NFT of an artwork to be listed at prominent auction house Christie's and sold for 69 Million USD on 11 March 2021. The day before the auction, Beeple said, "I actually do think there will be a bubble, to be quite honest. And I think we could be in that bubble right now." The speculative market for NFTs soared in the year leading up to early 2021 when the same investors who had speculated on cryptocurrencies traded greatly increasing volumes of NFTs. The massive price increases in early 2021 might hint at an economic bubble about to burst like in the Tulip mania of the 17th century.

The first NFT to enter auction representing a full album is Whale Shark by Clarian North, which was released on March 4, 2021. Kings of Leon's album When You See Yourself, released on March 5, 2021, had been planned to be the first musical album sold with NFT tokens.

Carbon emissions

The British AI artist Memo Akten created an online CO2 calculator to criticize the unreasonable carbon footprint for Ethereum-based NFT transactions. In early 2021, a German conceptual artist auctioned a single transparent pixel for 1 Ether and thereby emitting 125 kg of CO2. An analysis of data from an NFT market found that the average NFT art transaction used 340 kWh of electricity and had a carbon footprint of 211 kg of carbon dioxide, equivalent to around a month's worth of electricity consumption for a resident in the EU, driving for 1,000 km, or flying for 2 hours.

Notes

1. A Hashmask is a collectible piece of digital art put together by an international group of artists in the organization Suum Cuique Labs of Switzerland.
2. Network tokens are used to identify and validate payments over card networks, made with a specific merchant. Utility tokens are a type of cryptocurrency that represent access or discount to a product or service.

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External links

• ERC-721 Standard
• NFT explained in Simple Terms
• The Story Behind Hashmasks: Ethereum’s Greatest Art Sale

• Blockchain games
• Cryptocurrencies
• Ethereum