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A non-fungible token (NFT) is a unit of data on a digital ledger called a blockchain, where each NFT can represent a unique digital item, and thus they are not interchangeable. NFTs can represent digital files such as art, audio, video, and other forms of creative work. While the digital files themselves are infinitely reproducible, the NFTs representing them are tracked on their underlying blockchains and provide buyers with proof of ownership. The common blockchains such as Ethereum, Bitcoin Cash, Flow, etc. each have their own token standards to define their use of NFTs.

NFTs can be used to commodify digital creations, such as digital art, video game items, and music files. Access to any copy of the original file, however, is not restricted to the owner of the token. The first NFTs were Ethereum-based and appeared around 2015. The speculative market for NFTs soared in early 2021 when the same investors who had speculated on cryptocurrencies traded NFTs at greatly increasing volumes. NFTs mostly 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 for NFT transactions.

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. Although an artist can sell an NFT representing a work, the artist can still retain the copyright to the work and create more NFTs of the same work. The buyer of the NFT does not gain exclusive access to the work, nor does the buyer gain possession of the "original" digital file. 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

NFT can be used to cause artificial scarcity of a digital creative work by making only one NFT of that work with a unique signature. NFTs of artworks are therefore similar to autographed items. The unique identity and ownership of an NFT is verifiable via the blockchain ledger. NFTs have metadata that is processed through a cryptographic hash function, an algorithm that calculates a unique, 40-digit sequence of letters and numbers. NFTs are also used to create the possibility of asset interoperability across multiple platforms.

Digital art

Digital art was an early use case for NFTs, because of the ability of blockchain technology to assure the unique signature and ownership of NFTs. Digital artwork by Beeple sold for US$69.3 million in 2021. Christie’s made news in the auction industry by selling Beeple’s Everydays: The First 5000 Days for that massive sum.

Games

NFTs can also be used to represent in-game assets which are controlled by the user instead of the game developer. The first use of NFTs in gaming was implemented by Tokenzone using a centralized approach. 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.

Ethereum

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 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 Cash

The Simple Ledger Protocol (SLP) can be used to support non-fungible tokens by minting a non-divisible token supply of 1 without a minting baton, called a simple NFT.

NFT1 was introduced onto the Bitcoin Cash blockchain in 2019 as part of the SLP token structure. The specification codifies a more capable type of NFT that allows grouping of many NFTs together.

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.

GFT Alliance

The GFT Alliance promotes and supports NFT-distributed ledger technology for intellectual property partners (entertainment, gaming, film, arts, sports, etc.) including research, development, and education that empower on-going innovation for branded NFTs (GFT Authentic Digital Collectibles). The GFT Alliance helps intellectual property partners create NFTs and smart contracts to be distributed and traded on a globally accessible, transparent and trusted distributed marketplace network.

History

The first Ethereum-based NFTs were released as part of the Etheria project on October 29th, 2015 (upgraded to v1.2 on October 31) and presented at DEVCON1, the Ethereum Foundation's first fully public conference, by Etheria's creator Cyrus Adkisson on November 13, 2015, in London. Etheria is a 33-by-33 map of purchasable and tradeable hexagonal tiles upon which small structures can be built with LEGO-like bricks. To facilitate trading, the contract allows tile owners to simply "setOwner" of a tile to a new account. While this project was noted by the developer community at its launch, most tiles went unpurchased for more than 5 years until 2021 when strong interest in NFTs began a community-wide search for NFTs of note. On March 13, 2021, the remaining 359 tiles of the "official" Etheria 1.2 contract were purchased from the blockchain. The next day, the search led buyers to an unpublicized and abandoned prior version (v1.1) and all its remaining 409 tiles were also snapped up by buyers speculating that it represents "the first" NFT contract, despite its creator's disavowal.

In June 2017, CryptoPunks were released on the Ethereum blockchain by American studio Larva Labs, a two-person team consisting of Matt Hall and John Watkinson. Then, MoonCatRescue became the third 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.

In May of 2018, Atom Tickets, 20th Century Fox, Marvel Studios launched a Deadpool 2 NFT series under the GFT Alliance. The smart contract allowed users to move the NFTs to the public chain and sell through Opensea.io after a six month promotional window. Considered one of the first major Hollywood studio launched NFT program, only 67 of the NFTs remain in existence.

In 2019, film director Joe Dante, Jonas Hudson, and Elizabeth Stanley launched a limited edition series of NFTs under the Trailers From Hell brand. The Joe Dante's Signature series has 11 GFT collectors cards with only 10 of each minted and distributed through the GFT Alliance and sold on Opensea.io. Joe Dante also helped launch what's considered to the first NFT digital comic book at 2019 Comicon entitled American She-Wolf, a series of graphic novels distributed by Trailers From Hell and Produced by Caption Entertainment with Art created by Orlando Arocena. As of 2019, Nike holds a patent for its blockchain-based NFT-sneakers called ‘CryptoKicks’.

Dapper Labs developed the Flow proof-of-stake blockchain. Using it, in partnership with the NBA, they 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 that 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.

On March 6, rapper Azealia Banks, sold her audio sex tape titled "I F----D RYDER RIPPS" said to be a 24-minute long recording of Banks and her fiancé Ryder Ripps having sex, published on the NFT marketplace Foundation, and listed for 10 Ethereum and valued at over $17,000, 12 hours later, a artist who goes by the pseudonym Rulton Fyder, purchased the tape, it was re-listed at over $260 million.

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 69.3 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.

In a race for the publicity, the first full album represented by an NFT to enter auction was Whale Shark by Canadian electronic artist Clarian, 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

NFT purchases and sales have become enmeshed in a growing controversy regarding the high energy use associated with blockchain transactions. In recent years, there have been a number of web articles and academic reports citing high electricity usage associated with the Proof of Work validation process used on the Bitcoin and Ethereum networks. Annual greenhouse gas emission estimates from these studies vary, depending on the level of renewable energy used, but can rise into the hundreds of megatons, and are comparable to those of a country like Sweden. A principal cause of these high energy requirements is the Proof of Work process used to validate blockchain transactions, which can include NFT purchases and sales. However, ethereum.org notes that these validation cycles consume energy at a rate that is largely independent of the level of NFT activity. 

Some digital artists, such as Memo Atken, have voiced strong concerns and claims about large environmental impacts from NFT purchases and sales on the Ethereum network. In response to these types of concern, the Ethereum Foundation has been moving to a less energy intensive Proof of Stake type validation protocol, which it predicts will use less than 1% of the energy currently used by the Proof of Work process. This transition is expected to be completed by 2022. In the interim, some NFT art sites now allow the option of buying carbon offsets when making NFT purchases, or contributing a percentage of revenue to offset programs.

Some more modern NFT technologies, like Flow, already use proof-of-stake, and can have much less energy usage. Cryptokitties has plans to migrate from Ethereum to Flow.

See also

• List of most expensive non-fungible tokens

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
• Blockchain art
• Ethereum