A Complete Guide to NFTs
If you are hearing a lot about NFTs these days and wondering what it is, you are not alone. Should I learn about it? Is it just another fad? Are NFTs legitimate? Questions like these must be popping up in your head and this article will dive deep into the intricacies of NFT and what this hype is all about.
What Are NFTs?
NFT is an abbreviation for Non-Fungible Token that represents ownership of something that's digital and has perceived value. Non-Fungible basically means that every token is unique and doesn't hold the same value. They can be used in a multitude of applications, for instance, many NFTs are used to link digital content such as collectables, music, artwork, and video game items. Anything that can be a virtual property can be represented by an NFT.
One thing is for sure that the hype is real and NFTs are here to stay. They are currently one of the fastest-growing segments in the crypto space.
How Are NFTs Different from Cryptocurrencies?
When we talk about conventional cryptocurrencies such as Bitcoin or Cardano, we are referring to fungible tokens. It means that every token holds the same value and one can be replaced for the other. Every BTC that exists today has an identical value. On the other hand, the information that's carried by an NFT is unique and they are not replaceable. No two NFTs can be identical in value.
The other difference comes in the form of divisibility. You can send and receive a whole BTC or smaller fractions down to a single Satoshi. On the other hand, most of the NFTs are not divisible. Just like you cannot send someone a fraction of a painting, you cannot send a part of an NFT. The majority of the NFTs only carry value as a whole and aren't redeemable in parts. That being said, there are a few developers who are in the process of experimenting with the idea of fractionalised NFTs.
5 Key Properties of an NFT
- Every NFT has unique attributes
- Each NFT is associated or linked to a particular asset
- The asset an NFT is linked to is mostly digital but can be physical as well
- NFT also acts as proof of ownership for digital/physical items
- NFT tokens are not identical in value
How Do NFTs Work?
NFTs are generally created using a smart contract. For instance, Ethereum blockchain offers two different standards – ERC-20 token standard is for creating fungible tokens such as Chainlink (LINK) and Tether (USDT) while ERC-721 standard is used for making non-fungible tokens. Platforms like Decentraland and CryptoKitties have been developed using the ERC-721 standard.
While Ethereum is the most popular network for making NFTs, there are other smart-contract-supporting blockchains that can be used for creating NFTs including Flow, Solana, Tezos, EOS, and TRON. You can create NFTs using these blockchains with the help of NFT tools and support. Once an NFT is created, it can store detailed information including metadata, owner's identity, and secure file links.
The most significant application of an NFT is its ability to immutably prove digital ownership. This feature can be translated into developing trustless security to establish proof of ownership and exchange any asset.
How Can You Buy NFT Tokens?
If you are looking to buy NFT tokens, you can do so through NFT marketplaces including OpenSea, SuperRare, and Rarible. Every marketplace allows you to connect your wallet to the platform and login. After you have signed into your account, you can search for the NFT you want to buy. Once you have found the NFT, you can purchase it and the platform will ask you to confirm the transaction.
What NFT Protocols Are There?
When we think about NFTs, we usually associate them with images of digital art and collectables. However, you should keep in mind that while it's a popular use of an NFT, it's just a start as NFTs can be used for a number of diverse applications. It means that there is a multitude of opportunities ahead which make for a great chance for investors who are interested in capitalising on smart contract based blockchains. Here are some of the most promising NFT blockchains right now.
- Ethereum (ETH)
This is a name you must have heard before. Ethereum is a distributed blockchain that supports the development of decentralised applications (dApps) and smart contracts. The native token of the blockchain is Ether denoted by ETH and it serves as a mode of payment for borrowing ERC-20 tokens and transaction charges. The ERC-721 standard enables the creation of NFTs allowing major contribution towards building a robust NFT infrastructure.
- The Sandbox (SAND)
Established in 2011, The Sandbox is a virtual world based on a blockchain that enables users to build, sell, and buy digital assets through a game. It combines the features of NFTs and decentralised autonomous organisations (DAOs) to create a decentralised service for the gaming community.
- Flow (FLOW)
This is another promising blockchain that ensures convenience for developing decentralised apps (dApps) and businesses. It relies on a multi-role architecture design for scaling the network and promises better throughput and network speed without compromising developer-friendliness and composability.
- DigiByte (DGB)
It is an asset creation service and open-source blockchain that relies on five algorithms to deliver enhanced security. Initially, the purpose of the project was to improve the Bitcoin network's capacity, security, and transaction speed. Currently, it has three different layers including the core protocol, a public ledger, and a smart-contract-based app store.
- Polygon (MATIC)
This is a platform that has been specially created to provide assistance in developing infrastructure and enable Ethereum scaling. The primary component of the blockchain is its flexible and modular framework that enables developers to create and connect Layer-2 infrastructures.
- Decentraland (MANA)
The project refers to itself as a virtual reality (VR) platform based on the Ethereum network that enables users to create, monetise, and experience digital content and apps. The world allows users to buy plots of land that they can build upon and monetise. The platform offers support for both ERC-20 and ERC-721 tokens. You have to burn MANA tokens (ERC-20) to acquire LAND tokens (ERC-721).
- Filecoin (FIL)
Layer-1 of blockchains are limited in their on-chain storage ability. As all NFTs, and the digital asset they are linked to, are not stored on Layer-1 or Layer-2, an alternative storage solution is required. Filecoin offers a decentralised data storage solution that enables users to sell their extra storage through an open platform.
Investing in NFT Protocols with Coinpanion
Remember that currently there are many blockchains that support smart contracts and with the increasing popularity of NFTs, more and more projects are popping up every day. That's why traders and investors who want to bet on the most promising protocols have to be cautious and ensure that they are putting their hard-earned money into safe projects. Coinpanion offers an exceptional solution with its unique and innovative NFT portfolio.
- Diversification - With Coinpanion you don't have to invest in a single NFT protocol as your capital is spread across multiple projects to minimise risk through diversification
- Experienced Crypto Experts - All the NFT blockchains are handpicked by professional crypto experts who have gained immense experience in the sector
- Promising NFT Blockchains - All the popular NFT blockchains are offered by Coinpanion including ETH, FLOW, MATIC, and FIL.
- Weekly Rebalancing - Your portfolio is managed with advanced risk mitigation techniques including automated weekly rebalancing
What Does the Future Hold for NFTs?
While most of the NFT applications are currently focused on gaming items, artwork, and crypto collectables, many top brands are now licensing their content using NFTs. One of the most popular football fantasy games, Sorare, has signed a deal with more than 100 football clubs while Doctor Who, Minecraft, and Smurfs have been rendered as NFTs. In June 2021, Twitter started offering its own collection of NFTs and recently it is also enabling users to verify their NFT avatars.
And all this is just the beginning of capitalising on the potential of NFTs. The true range of applications is much wider and diverse as NFTs can be used for protecting intellectual property rights, sale and exchange of digital content including games, movies, and music, along with ticketing. It can also be used to create security tokens and many types of digital and physical assets can be wholly and even partially tokenised.
Time to Invest in NFT Blockchains is Now...
If you are still thinking about investing in NFT protocols, there's a considerable chance that you are going to miss out. NFTs aren't just about hype, they have legitimate real-world applications which are only going to increase and diversify as we move forward. Coinpanion offers a diverse portfolio of NFT blockchains that can prove to be a great starting point for investors.