WhaleVest｜WhaleVest 100 Compass｜Comprehensive introduction to NFT concepts

What is "non-homogeneity"?

The term "non-fungible" refers to the irreplaceability of items. Irreplaceable items cannot be directly exchanged for other items of the same value because the properties of the two items are different. This means that non-fungible items cannot be traded on a standardized scale because their value stems from their uniqueness and the subjective value buyers place on them.

Homogenous assets, such as currencies, are easily exchanged because they are consistent. Conversely, non-fungible assets are unique and irreplaceable, which can appeal to collectors who want to acquire truly unique items.

What are non-fungible tokens (NFTs)?

NFTs are cryptographic tokens hosted on the blockchain that can be used to represent digital assets. Non-fungible NFTs define digital assets that represent ownership of unique items, such as artwork, video game items, trading cards, virtual real estate, and other digital goods.

In recent years, NFTs have become widely popular, allowing creators to earn compensation for their digital creations and allowing collectors to own unique digital assets.

How do NFTs work?

NFTs are based on blockchain technology, which provides a decentralized ledger that records transactions and ownership details. Its transparent and immutable nature allows the ownership history of an NFT to be clearly traced. When ownership is transferred, the authenticity and legality of the NFT can be verified.

Another underlying technology for NFTs are smart contracts, which are essentially self-executing programs. By automating and enforcing relevant conditions, smart contracts can create, manage, and transfer NFTs without intermediaries.

A key to NFTs is implementing token standards. NFTs ensure interoperability and consistency across different platforms through defined rules and functionality for creating, managing, and transferring NFTs. For example, the most widely adopted token standards for NFTs are ERC-721 on Ethereum and BEP-721 on the BNB chain.

The process of creating NFTs is often called minting. Minting uses smart contracts to convert digital files into digital assets on the blockchain. When you purchase an NFT, you essentially take ownership of a unique identification number (or token ID) associated with a specific digital asset.Therefore, the code owner has exclusive rights to use, display, and interact with the asset.

What are NFTs used for?

NFTs have redefined the concepts of ownership and value in the digital world, creating new opportunities for creators and consumers. Common NFT applications are listed below:

NFT art

NFT art provides artists with a new way to monetize their works. By tokenizing art, creators can sell unique digital copies, thereby preserving the originality and scarcity of each work. NFT art also allows collectors to display the work in a virtual gallery, trade it, or even loan it to others.

NFT game

NFT games can incorporate NFTs as digital collectibles (such as in-game items and characters). NFT can also be used as virtual real estate for players to trade, potentially creating a gaming ecosystem for players to earn rewards through game achievements and assets, thereby establishing a secondary market.

NFT pledge

NFT staking allows users to earn rewards by placing NFTs as collateral. Some decentralized finance (DeFi) platforms have enabled staking operations, allowing holders to earn interest while retaining ownership of NFTs.

NFT ticketing

NFTs can be used for ticket management. For example, event planners could issue NFTs as tickets, providing immutable proof of ownership and attendance. Additionally, NFT tickets can be transferred and resold without involving third parties.

Popular NFT Examples

CryptoPunks

CryptoPunks are one of the oldest NFTs on Ethereum. Launched in 2017, it consists of 10,000 8-bit pixel art characters generated by a unique algorithm. Each CryptoPunk character has different traits and attributes, making them particularly attractive to collectors.

You may even see celebrities using these characters as their social media avatars. The project was a huge success, laying the foundation for a new era of digital art and collectibles.

Boring Ape Yacht Club (BAYC)

Bored Ape Yacht Club (BAYC) is a character collection of 10,000 unique hand-drawn cartoon apes, each with different characteristics. These digital artworks are collectibles that provide the holder with access to exclusive events and virtual spaces. As a result, these NFTs blur the lines between digital artwork and experiential products.

Decentraland

Decentraland is a virtual reality (VR) platform built on the Ethereum blockchain. It features an NFT decentralized market that allows users to trade pieces of virtual land and various in-game items. The Decentraland platform can be said to be at the forefront of virtual real estate and the metaverse.

NFTs are the same as cryptocurrencies

While NFTs and cryptocurrencies are both digital assets that use blockchain technology, they have different uses and characteristics. Cryptocurrencies are generally designed to facilitate transactions. They are also homogeneous, meaning each unit is convertible into another unit of the same currency. For example, you can exchange one Bitcoin for another Bitcoin without any difference in value.

In contrast, NFTs are unique digital assets. NFT is non-fungible, which means that each NFT has unique characteristics and cannot be directly interchanged on a one-to-one basis. Simply put, NFTs determine value based on uniqueness and scarcity.

Summarize

NFTs are unique digital assets built on the blockchain that establish ownership and verify the authenticity of the item they represent. NFT has soared in popularity due to its diverse applications. It provides creators with new ways to monetize their works and allows collectors to take the opportunity to hold and display unique assets.

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