Hamed Tavakoli
A Non-Fungible Token (NFT) represents a unique digital asset with its own specific features, primarily used in digital applications. Today, they are utilized without boundaries across a wide range of sectors including art, video games, virtual lands, and even movie tickets.
What is an NFT?
Technically, an NFT is a unique token created using a smart contract on a blockchain. This token can include various metadata such as the name of the collection it belongs to, the wallet that created it, external links, its features, and more.
These tokens are contrasted with fungible assets. Fungible assets are “assets that are consumed through use and can be replaced with assets of the same type, quality, and quantity.” For example, two one-liter bottles of water from the same source represent the same type, same quality, same quantity. As soon as one of these conditions is not met, the asset loses its fungibility.
In the virtual world or metaverse, NFTs are used to identify land parcels based on their location on the map as well as their width and height. Another example is art, allowing you to sell a limited number of copies of a digital artwork.
In between these, there are “semi-fungible tokens” (SFT) which extend the rules of fungibility. These tokens are designed for mass production and sometimes consumption, but still retain their unique identity. SFTs are widely used in the world of video games. They can also be used in art for practical purposes, such as buying and selling movie tickets.
What are NFTs used for?
Thanks to the Counterparty Bitcoin platform in 2014, the game Spell of Genesis released its first cards in 2015. In 2016, Rare Pepes memes took the market by storm, creating an artistic movement that influenced its generation and subsequent ones.
In 2017, CryptoPunks was launched on Ethereum, Decentraland started working on its metaverse, and Dapper Labs helped establish the NFT standard on Ethereum with CryptoKitties.
By mid-2018, the ERC-721 standard was created on Ethereum, allowing for token interoperability on this blockchain. Since then, other metaverses like The Sandbox or Voxels have been developed, several art marketplaces like SuperRare or Known Origin have emerged, and video games like Gods Unchained or Axie Infinity have had significant updates.
In addition to these projects, several NFT-specialized blockchains like WAX, Ronin, or Flow have emerged, each offering their own attractive capabilities in this colorful world.
How to create an NFT?
Today, there are various options for creating NFTs, but technically, it requires going through a smart contract that includes all the information related to the NFT. Thanks to platforms like Opensea, Rarible, or SuperRare, creating NFTs (“minting”) on many blockchains has become very easy. Simply download a cryptocurrency wallet like Metamask or Frame and follow the steps to create an NFT in the marketplaces.
There are also other projects that offer registration with a username and password and payment by credit card to create NFTs. However, if the platform used to create the collection shuts down, managing the smart contract or even accessing the NFTs can become problematic.
You can also deploy your own smart contract using services like Manifold or Mintable. This offers more freedom regarding the code and control over the private keys of the smart contract.
How and where to buy or sell NFTs?
Once created, NFTs are publicly visible, and any platform that reads smart contracts can show their existence. The main platforms for buying and selling NFTs are Opensea, Rarible, Looksrare for Ethereum, or Magic Eden and Solsea for Solana, which are widely used today.
Their functionality is similar; you need to create a wallet and have cryptocurrencies before you can buy or sell NFTs on these platforms. Sometimes configuring and purchasing cryptocurrencies is not straightforward. This is why markets like Veve or centralized exchanges like Binance or Crypto.com also offer NFT buying and selling services. However, even if the user experience on these platforms is very smooth, the closure of the platform means the inability to interact with the NFTs still hosted on it.
Why are NFTs heavily criticized?
Criticisms of NFTs began in late 2020, particularly regarding the carbon footprint created by the use of graphics cards to secure the Ethereum network, which made headlines. Two years later, with The Merge, Ethereum significantly reduced its power consumption, but this was not the only criticism of NFTs.
Although the use of other environmentally friendly blockchains was possible, it was the financial aspect that was heavily criticized. 2021 was a year when quick profits were very common in the entire market, leading to proliferating NFT projects without real value.
The list of criticisms grew longer when these promises of quick money led to hacking attacks, phishing, and deceptive links aimed at stealing wallet contents.
Some sellers would download works from platforms like DeviantArt and create them as NFTs without the original creator even knowing. All these significantly damaged the reputation of NFTs and reduced the visibility and value of their legitimate use cases. However, the NFT ecosystem has listened to these criticisms, adapted, and continues to strive to create a healthy and secure space for the majority.
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