NFT Elementary

Background?

Nowadays, everyone must have heard about cryptocurrency - a digital token currency based on the Blockchain technology. Although there are doubts about the future of cryptocurrency, the tech behind it is here to stay. For the scope of this article, you can assume that Blockchain is a logbook for digital token transactions. Every transaction (create, edit, transfer, and delete) gets logged, and the log is unalterable. As people learned more about the Blockchain, different experiments started around the technology. NFT (Non-Fungible-Token) Marketplace is one such successful experiment. The NFT industry came into the limelight after Mike Winkelmann, also known as Beeple, sold an NFT for ?570 crores. Since then, the market has surged and become a multi-billion rupees global industry. All of these big headlines make us wonder what exactly NFT is. So, let's start from the basics.??

What is an NFT? How does the NFT Marketplace work?

Non-Fungible-Token (NFT) is a digital token on the Blockchain, holding data and data ownership information. Data here can represent images, videos, links, or texts. As the name suggests, it is a non-fungible or unique token per smart contract. It possesses no pre-assigned value and has only one owner. All NFT transactions are recorded and done using the native cryptocurrency (Bitcoin, Ether, Flow, etc.) of the Blockchain. The smart contract determines rules to create, transfer, update, and delete the NFTs.

Let's take a physical world example for better understanding. Assume that you have a beautiful painting and would like to sell it in the market. The painting itself has no pre-assigned value. You can decide to sell the artwork at any price in the native currency(?). In a simple sale business condition, you put the price ?1000. ?1000 is an exchangeable currency and possesses a particular value. When a buyer gives you ?1000, the painting goes to the buyer along with the rights. Similarly, an NFT can be created to represent a painting. You, being the owner, can decide to sell the NFT at any price in the native cryptocurrency (Ether, Bitcoin, FLOW, etc.) of the Blockchain. When a buyer makes a purchase, NFT gets transferred to the buyer's account. This sale transaction gets recorded on the Blockchain, and anyone can verify the purchase.

In the above physical world example, you can approach different marketplaces to sell the painting. Marketplace gives you a better reach and can support more complex business conditions like auctions. Those marketplaces (Amazon/Flipkart/eBay) usually have their terms and conditions. Based on the contract, they allow auctions, rent, or other use cases. Few of them can also allow a purchase in multiple currencies. Depending on the business needs, you can engage with the Marketplace. NFT Marketplaces work in the exact same manner. NFT Marketplace uses the smart contract in the Blockchain to set business conditions. Few of them even support auction and rent conditions with multiple cryptocurrencies. Now that you know how the NFT marketplace works, let's see some famous use cases.

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Popular Use Cases of NFT

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Entertainment:

NFTs opened a better economic model for the entertainment industry. The industry always needed help to decide and distribute a fair share of revenue for participants. With the transparency and immutability of the Blockchain, NFT provides a potential solution for everyone in the chain. Monetizing behind-the-scenes videos, selling merchandise directly to fans, embedding royalty-sharing in the smart contract, and protecting creator IPs are among the few benefits of NFT. Not just individual artists but studios are also earning big from the revolution. For example, NBATopShots (National Basketball Association) generated around ?4000 crores of revenue last year by selling NFTs as video clips.

Collectibles Arts:

Many of us remember how we used to collect postal stamps, Coca-Cola bottle caps, or WWE play cards in childhood. Back then, it was our valuable, priceless collection. Similarly, the main idea behind the NFTs was to commodities collectible assets. Since it's emotionally driven, there's no limit on the price for such digital art. The individual passion can pay any price for the collection. The wild success of NFT art collections like Bored Ape Yacht Club displays that passion. Some artists also started using the fame of NFT to sell digital and physical art together at higher prices. In this case, the person buying the digital painting will also get the physical artwork delivered.

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Fashion:

We know that the counterfeit items of luxury brands affect the brand value and revenue. Characteristics of NFTs provide a way to tackle piracy. Physical items strongly linked with NFTs can easily verify the originality. Dolce & Gabanna paired physical clothing items with NFTs and sold a nine-piece collection for a reported ?4.5 crores. Madeium recently announced the NFC-embedded 3D-printed sneakers with NFT ownership. The market for luxury goods is significant, and we can see similar approaches coming soon.

Gaming:

Reward-based gaming has become a trend in the industry over the last few years. By progressing through game levels, you can achieve the rewards. These rewards can be an asset like costumes, avatars, or weapons. Representing these assets as NFTs can help with game economics. Players can then trade Game NFTs on marketplaces. Eventually, this use case of NFT is beneficial for players and developers.?

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Conclusion

Even though NFT is comparatively new, its popularity is growing day by day. With the help of Transparency, Immutability, and Identity Verification, the technology can provide solutions in multiple industries. From tackling the counterfeit market to delivering collectibles, NFTs are making their way into the masses. Celebrities are diving into the space, creating a buzz around Collectible NFTs. So, Artists and Studios should also take advantage of the craze and money floating in the industry.?

There are multiple factors to weigh before you look into the future of NFT. Although the use cases look promising, the technology is not hundred percent foolproof. Lack of technical expertise makes it difficult to understand the smart contract, resulting in fraud. As of now, most of the countries don’t have a rigid policy for crypto assets. Our law of the land is still behind the technology, creating a difficult time for NFT enthusiasts. Hence, both creators and consumers should invest cautiously in trusted Marketplaces. For newcomers, popular trusted marketplaces like OpenSea and their tutorial videos can provide the base.

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Author: Jayant D Kannadkar

He is a security researcher and privacy enthusiast. He always promotes the importance of security and believes that privacy policies should not be kept just on paper. He works as a Senior Software Engineer for Intertrust Technologies. You can connect with him on Linkedin.

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