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What Is an NFT and Why It Matters

Date: May 12, 2022 Category: Scaleswap NFT Featured Graphic

NFT is currently one of the most used terms in the web space. Celebrities, YouTubers, Influencers, and businesses are getting more and more obsessed with NFTs which have skyrocketed in popularity in the past 2 years. 

According to Google Trends, the search “NFT” reached a score of 100 in January 2022 which is the highest possible score in Google’s ranking system.

What has built up all this hype in people, businesses, and public figures?

To answer this question, we first have to understand what is the difference between NFTs and regular cryptocurrencies.

How Is an NFT Different from Cryptocurrencies Like Bitcoin?

In comparison to crypto tokens, the non-fungible tokens (NFTs) cannot be duplicated since each NFT has unique metadata and identification code. 

That by itself increases the value of NFTs tremendously similar to the one-of-a-kind old paintings or custom-made watches.

It is even possible to sell real items as NFTs… but wait, the possibilities of this evergreen technology don’t end here!

What Are NFTs Used For?

When you hear “NFT” probably the first things that pop to your head are art, paintings, images…

Well, it all started with digital art, but in the past year, things have changed.

Some other use cases of NFTs include:

Selling, owning, renting, and borrowing real estate

People working in the real estate industry are among the most interested in NFTs. This technology saves them endless hours, money, and energy in many ways.

As you probably know, smart contracting is one of the best ways to securely transfer assets on the blockchain. If you’re in real estate, selling your assets as NFTs will surely be one of your best career decisions.

Patenting

The traditional patenting is backed by an IP address and there are risks of faking, changing, or distinguishing that IP.

An NFT-backed patent completely eliminates this danger because the identification code can prove who is the patent owner, how old is the patent, what intellectual property stays behind this patent, and so on…

Even though the air transportation industry is more than 100 years old, there are still ticketing fraud cases. That is because many airlines still refuse to digitize their ticketing system. 

Ticketing

This not only risks losing money from fraudulent activities but also causes environmental issues.

Using NFTs as tickets can also help airlines market themselves by making their tickets stand out with artistry in mind.

Voting

During the last US elections, there were huge scandals related to the voting results. There were plenty of allegations from Trump and his team that Biden’s team was faking votes which led him to win the elections.

If the governments decide to strengthen their voting system by turning each vote into an NFT, throwing allegations will be pointless because everybody will be able to check whether the votes are authentic or not.

Proving certificate and academic credential ownership

Nowadays academic institutions still issue paper certificates as proof of academic achievements.

That is why especially in less developed countries there are still some cases of people receiving certificates by paying someone.

If people receive NFTs for each passed test, semester, or degree, such frauds won’t be possible anymore.

Product supplying

As the world population rises at a faster pace than ever, the demand for consumer goods increases too.

That is why it is getting harder and harder to track all the products’ locations, prices, ownership, and everything related to it.

By uploading every single product into the blockchain, tracking the supply chain will be a much simpler and faster process.

Now you know how NFTs can be used in a variety of industries and purposes. Yet, you’re probably wondering exactly how all that works…

How Does an NFT Work?

Each NFT asset is stored on the blockchain which in simple terms is a ledger maintained by millions of computers around the world.

For an NFT to exist, it first has to be minted. The process of minting is simply uploading your digital asset into the Ethereum blockchain network.

There are other networks where an NFT can be minted such as Binance Smart Chain, Solana, Cardano, Tezos, Flow, and several more. The number of network options for minting is expected to increase exponentially.

After a Non-Fungible token is minted, it receives its own metadata which differentiates it from every other asset on the blockchain.

As assets eligible for transactions, the NFT market also needs a way to be regulated. This is done with the help of the standards set in the industry. Each standard defines a different aspect of the NFTs.

The first and most popular one is ERC-721 which was developed back in 2018. It defines the unique characteristics and ensures each NFT transfer is as secure as possible.

The second essential standard is ERC-1155 which prevents hacking during transactions.

Other Ethereum-based standards are: 

  • ERC-223 – ensures the tokens are transferred only to compatible blockchain addresses.
  • ERC-988 – allows NFT holders to merge one or more tokens to increase its uniqueness hence its price.
  • ERC-865 – gives the option to pay for NFT transactions with crypto instead of gas.

Even though the most standards are based on the Ethereum ecosystem, there are some exceptions such as:

  • BEP-721 – the ERC-721 alternative based on the Binance Smart Chain which offers lower trading fees.
  • TZIP-12 – based on the Tezos blockchain.
  • TRC-721 – the Tron-based alternative of ERC-721 which also offers much lower fees to its users.

After learning all that information, I suppose it’s time for you to decide whether NFTs deserve a cut in your budget.

Should You Buy NFTs?

First, one huge disclaimer – you decide where to invest your money. The only purpose of this article is to inform you what NFTs are so you can make an easier decision on whether to jump on the NFT train or not.

Probably the biggest reason people invest in NFTs is their exclusivity. A key factor in the world economy is demand. Bigger demand equals more people opening up their pockets.

In comparison to the regular products which are usually produced in million or even billion quantities, each NFT is 100% unique. That by itself increases the demand for it, which is the reason for the immense prices of some tokens.

On the other hand, that demand is completely artificial. In other words, people can continue their lives no matter if NFTs exist or not. 

Compared to other products like food, clothes, or water, the demand for digital assets is not based on any human necessities, but on the exclusivity factor.

However, exclusivity is just one of the many factors. Other crucial factors are ownership history, potential future value, utility, and liquidity.

Let’s take a closer look at each of them!

Ownership history

Since NFTs are created by people, it is essential to know exactly who stands behind the project.

Many people think that if someone famous is connected to the project, it most likely will go to the moon.

Yet, there have already been plenty of cases of world-known people promoting or launching NFT collections that turned out to be nothing but scams.

One example of that is the Trollz NFT collection by the infamous rapper 6ix9ine. Even though there were big promises for the project like a metaverse game with prizes and a $100,000 charity fund, the NFT holders received nothing but empty promises.

Another example is the song by Lil Pump and Soulja Boy called “Mona Lisa” which was released as NFT. Every investor receives a share of the song’s royalties depending on the investment amount.

At first sight, all looks promising due to the fact both artists have a history of making hits. Yet, the song wasn’t even promoted, it had no music video and sounded like it was recorded and arranged in 20 minutes. 

Turns out the total amount of $500,000 that has been invested in the song won’t accumulate any return to its investors.

Of course, there are also celebrity NFT projects that turn out to be successful like Takeoff’s Apes in Space. But the celebrity-endorsed NFT projects are a two-edged sword. Researching the celebrity and everyone involved in the back end of the project is a must before you consider investing.

Potential future value

The most obvious factor that shapes future value is scarcity. Every prominent collection consists of NFTs with rare characteristics that increase their price.

This particularly applies to the games built on the blockchain since the traits of these rare tokens can be easily distinguished and act as an advantage for the players.

Since everyone who invests is doing it for achieving high returns in the future, it is essential to carefully study the project whitepapers and their tokenomics.

By doing so you can examine what has been already achieved and what is about to be achieved. The plans of the developers have to be backed by their current actions, partnerships, and accuracy in their forecasts. 

If their past goals have been reached within the deadlines they’ve promised, the chances of achieving the same success with their future goals are high.

Utility

A lot of people see the NFTs as an asset with no true value without realizing there are plenty of ways to utilize that technology.

As we mentioned earlier, there are already plenty of use cases and there will be much more in the upcoming years.

Yet, currently, the highest valued NFT assets are connected to the gaming industry. For instance, in the metaverse of Mirandus, you can buy NFTs in a form of digital real estate that can be borrowed from players.

Liquidity

Liquidity is a common term in the stock and crypto markets. The higher the liquidity of an asset is, the easier it can be traded on the exchanges. The same rule applies to non-fungible tokens – higher liquidity usually means a higher price.

When considering your involvement in an NFT project always consider those 4 factors.

How to Buy NFTs

NFTs can only be bought using the cryptocurrency of the network they’re built on. The most popular network for this purpose is Ethereum but due to the cheaper gas fees of other networks like Polygon and Solana, more and more people are switching from Ethereum to those cheaper alternatives.

After you buy the cryptocurrency that corresponds to the blockchain network of your desired NFTs, you have to transfer your crypto into a wallet. There are a lot of wallet options both exchange-based and independent. 

For instance, the crypto exchange Coinbase has its own wallet. In comparison, wallets like Metamask are not backed by the exchange but they still work well and even have some additional features like a built-in browser and the option to buy crypto without an exchange.

After funding your crypto wallet, connect it to the NFT marketplace so you can make purchases. That’s was it – a straightforward process!

Popular NFT Marketplaces

New marketplaces are popping up constantly and some newcomers in the NFT world find it hard to choose which marketplace deserves their attention. 

That is why we will cover the most prominent ones as well as a few ones with growing popularity.

OpenSea

If you’re at least a bit interested in NFTs, it’s hard not to hear about OpenSea. Currently, you can use more than 150 different tokens for buying a piece of art from that platform.

It is also probably the go-to place for new NFT creators as it has a user-friendly tool for creating (minting) Non-Fungible Tokens.

Mintable

This platform is known mostly thanks to its founder Mark Cuban. It only supports Ethereum for now.

Mintable is considered to be the best platform for creators since it offers high royalties which enable artists to make more from their works.

The platform also offers features like zero fees trading and “Sellers University” which is a great starting point for new NFT investors.

Theta Drop

That platform is not only an NFT marketplace but also a whole blockchain ecosystem designed to improve decentralized TV and web distribution.

The platform users also have the opportunity to participate in challenges with the chance of winning prizes in various forms.

Crypto.com

This platform is a relatively new player in the NFT game since they entered it less than a year ago. For a span of a few months, they turned into a major NFT marketplace.

When trading you won’t pay any gas or extra listing fees. You can even buy NFTs directly through your bank card. When you combine these features with an outstanding design and interface, Crypto.com is fully capable of competing with the biggest marketplaces like OpenSea.

Binance

As the biggest crypto exchange on the planet, you’re probably not surprised they’re also taking advantage of the hype.

It looks like a lot of people still don’t know that Binance has its own NFT marketplace but they’re working hard on changing that by establishing big partnerships.

Binance relies on selling NFTs created by big artists which also gives light to this segment of the platform.

Users can also buy mystery boxes some of which contain rare and expensive tokens.

WAX

WAX is another blockchain network that is about to launch its marketplace. A lot of people are excited about this upcoming marketplace because WAX has already proven to be a reliable network with various useful dApps like their Cloud Wallet or Developer Hive.

You can still trade NFTs on their “Simple Market” dApp but their upcoming marketplace will offer much wider possibilities.

Foundation

At first sight, this seems like a regular NFT marketplace. Yet, what makes it different is its focus on selling only exclusive hence expensive tokens. 

Thanks to that, artists using the platform have been able to earn over 180 million since February 2021.

These are some of the major marketplaces. Each of them has advantages and disadvantages, so make sure to study each of them before buying or minting.

NFT examples

The market is flooded with new NFTs as every day there are over 1000 transactions. However, some projects stand out with their utility, creativity, and cause, so we will cover some of these projects.

STEPN x ASICS

This is a perfect example of applying the NFT technology to improve people’s lives. STEPN is a fitness application that pays its users fungible and non-fungible tokens if they are equipped with the NFT sneakers that have the Asics logo on them.

To further gamify the app, NFT holders can level up their virtual sneakers by burning tokens. The more upgraded their shoe is, the higher performance it has which leads to higher earnings.

Decentraland

This is a one-of-a-kind virtual world that is solely controlled by its users which also makes it a DAO (Decentralized Autonomous Organization).

This is one of the first already functioning metaverses and is currently the fastest-growing one.

During the pre-sale phase, people have spent over 30 million in bidding for digital land which secured Decentraland’s leading position as a metaverse.

Crypto Baristas

This project has the goal to open the first NFT-funded cafeteria. Everyone who purchases their tokens enjoys discounts on coffee products.

15% of the acquired revenue goes for the “Barista Bank” which is a fund for supporting coffee-related charity organizations as well as potential future projects that will also benefit the project investors.

JPEG Cards

This project is one of the pioneers in merging NFTs and DeFi into one thing. The fans of this project are working on achieving this goal by submitting their CryptoPunk tokens into a smart contract that mints a stablecoin called PUSd. 

This makes their CryptoPunks more liquid because they turn from static digital assets to yield farms. They are constantly involving other known NFT projects in their ecosystem. They only work with already proven projects to ensure every NFT collection brings decent and stable profits to its users.

Unstoppable Domains

Soon we are all going to forget about paying yearly subscriptions for domains. If you decide to buy your domain from Unstoppable Domains, you’ll have to pay only a one-time fee without the need to pay even a cent more for your domain.

This platform also gives you the option to merge a crypto wallet with a domain on which everyone can send you crypto. This keeps you from receiving transactions to the wrong address since you’ll be certain (hopefully) what address you are sending to.

We all can expect plenty of more useful NFT projects that will not only revolutionize specific industries but the world in general. As we discussed earlier, the NFT technology is entering more and more industries and there is no sign of stopping.

Benefits for NFT creators

The first goal of the NFT technology was to help creators earn more from their works even if they’re doing it independently. 

Looks like all that is working out since thousands of artists are already making six, seven, and even eight figures from their creations which makes a lot of undervalued artists feel like they have a valuable place in the world. 

Yet, what are other benefits that artists can get from incorporating the NFT technology in their daily work? Let’s find out!

It is easier for creators to market their arts

One of the biggest struggles of artists is and has always been marketing. Many artists think it is too cheeky to put their creations in front of people. 

However, they forget that there is no way to make a living out of their work without people knowing that their work exists.

By turning their art pieces into NFTs, they can present them to huge platforms like OpenSea which already have huge traffic.

This is great, especially for the artists that put their whole hearts into their projects because, with time, people will recognize the hard work.

People also see buying an NFT as a better option than buying a regular painting because they can get additional perks from owning the asset. If the creator puts more effort into building a project that also benefits its investors, the creator can make even more money without putting in extra work. That is why creators with experience in marketing, development, and management usually make much more money.

It is much easier for the artists to brand themselves

Usually, it takes many years for artists to build a loyal brand that supports them both mentally and financially. Some artists even needed a lifetime to receive recognition – Van Gogh is a clear example of that.

Luckily for today’s artists, selling their arts as tokens is not only an easier way to market and sell, but also to build a die-hard community. By teaming up with other people who believe in the project, artists can involve their audience in games and challenges.

That by itself creates an interactive experience that enables the project to further develop itself with new features, art pieces, and partnerships. A great example of that is the STEPN x ASICS NFT collection which we mentioned earlier. 

This project not only directly involves its investors in it but also is backed by two industry giants like Asics and Binance. These companies have millions of fans and even if only 1% of these people find out about the project, there will still be a good amount of new investors, especially because the project’s utility and mission are closely related to the audiences of both Asics and Binance.

Artists have more rights

It is a well-known fact that many artists agree to contracts that exploit them only because they think it will open new doors for them and other people will do the dirty work. 99% of the time that is not the case.

This is common, especially in the music industry and that is why more and more artists are getting involved in the NFT revolution. In 2021 only 12% of the total accumulated revenue from music streaming entered the artists’ pockets.

Ending the contract and becoming an independent artist sounds scary to the majority of artists, but since it is easier than ever to do marketing, more and more artists are realizing the independent path is not as scary as it sounds.

Boosting gaming potential

The gaming industry is one of the biggest in the 21st century. It is estimated that this branch is worth over 300 billion dollars which makes it the wealthiest media sector.

Fortunately for the folks working in that sector, it will most likely hit the 1 trillion mark in the next 5 years and NFTs are a key reason for this prediction.

Let’s find out how exactly this technology can triple the gaming industry size.

Extended ownership of the gamers

The gaming industry is often accused of “stealing” people’s time by involving them in completely fictional worlds which distract them from reality.

These accusations will most likely disappear because people’s belongings in the gaming world will have a real-life value since they’ll turn into NFTs.

A clear example of that is the game Axie Infinity which has turned into the 3rd largest NFT marketplace valued at 3+ billion dollars.

When players benefit financially from spending time and money in the game, they’ll be much more involved in the process, especially if their earnings gradually increase.

“Won’t this further complicate the problem with game addiction?” you may ask.

Yes, it might, but at the end of the day, everyone over the age of 21 is responsible for their actions.

There are many different addictions like sugar, tobacco, alcohol, and drugs. All of these cause much more harm and don’t benefit people financially or intellectually.

There are addictions everywhere you look and that is the biggest reason for people getting addicted. Making gaming profitable for the players is actually minimizing the harm from overplaying because money has to be spent in the real world, so addicted players will eventually stop playing for a bit and spend their earnings outside.

Powerful weapon against piracy

Piracy is a huge issue not only for the gaming industry but for every media-related industry, especially the movie one.

A staggering 24% of the internet’s bandwidth is used for piracy. Most people know piracy is illegal and they still do it despite the consequences of being caught.

A blockchain-based internet can drastically decrease this percentage. As everything that happens on the blockchain is stored as information on each “block” of the chain, companies can take a look at the blocks corresponding to the company’s data and track piracy activity.

This will act as undeniable proof to the authorities so they can act according to the law.

Many people would also prefer not to play games illegally because they will miss out on the perks that the game offers such as NFTs, cryptocurrencies, and tournaments with big prize pools.

NFT-backed loans

It’s hard to believe that NFTs are revolutionizing even the banking industry, but it is happening for real.

There are companies specializing in crypto banking that allow their clients to borrow crypto. The best part is that instead of using your real-life belongings like real estate and cars, you can use NFTs as proof of wealth.

This sounds like a much better option because even in the worst-case scenario, you’re not going to lose the place where you live or the car that saves you hours from using public transportation.

You’ll lose only your digital assets which will make you significantly poorer, but at least you’ll have a roof over your head.

This opportunity is also great for people in the business world because if they got their hands on NFTs that suddenly blow up, they’ll not only become richer almost overnight but will also have access to much bigger funding opportunities that can potentially multiply their net worth and influence in the business circles.

Conclusion

The NFT industry is here to stay. Despite all the claims that this technology makes no sense, we can clearly see that creating and selling digital art is just the beginning. We are about to live in a more open and decentralized world that offers equal opportunities not only to artists but also to the rest of the population.

You’re one of the lucky ones who are willing to jump into the rabbit hole when it’s still early. History has many examples of people who became multimillionaires only because they grabbed an arising opportunity such as the early investors in Facebook.

Would your life turn out the same way? Only time will show.

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