What are NFTs? An Introduction

Introduction

Starting from August 2021, NFTs have started to garner increasing interest, which then exploded in the first few months of 2022, with celebrities and VIPs such as Neymar and Justin Bieber announcing that they have purchased their NFTs for hundreds of dollars.

For many, at the current state of affairs, it would be just a so-called “buzzword,” a bubble, but on the contrary, I believe it is a phenomenon that will probably revolutionize the world of art and beyond in the years to come. But let’s take it step by step and discover why.

The meaning of the word NFT:

NFT stands for “Non-Fungible Token,” which are non-fungible tokens, and is a relatively new technology but also older than you might think since the first NFTs were born in 2015. Returning to our acronym, being fungible is the ability of a particular good or asset to be exchanged for another good or asset of the same type.

To simplify, some classic examples of fungible goods are traditional monetary currencies such as the euro and the dollar, but also cryptocurrencies such as Bitcoin and Ethereum, as they are goods that, if exchanged with themselves, will still maintain the same value. At the same time, fungible goods can also be divided into submultiples of themselves: 100 euros or two 50-euro pieces are the same thing.

On the contrary, non-fungible goods work in a completely opposite way, being irreplicable and unique goods. Some examples may include skyscrapers, houses, physical or digital artwork.

With this premise, you should have understood what is meant by the first part of the NFT acronym, “non-fungible.”

Now let’s move on to the word “token.” This term is translatable from English with the word “token,” but with that, we mean non-replicable goods that exist within a blockchain that certifies their authenticity. Without delving too much into the technical part related to blockchains, we can therefore say that NFTs are a sort of digital version of anything that can be thought of or created on the web. We are talking about images, videos, GIFs, Tweets, songs, applications, video games, metaverses, and much more. All the history of these digital assets, from their creation to their evolution, will be saved within a blockchain that allows not only to verify their authenticity but also the actual owner.

Furthermore, these non-fungible assets have different market categories, such as art, metaverses, video games, music, etc.

The artistic field, to date, occupies the largest share of the NFT market: in fact, imagine that NFT transactions related to art revolved around 12 million dollars in 2020, while in 2021, they far exceeded 20 million.

Regarding the marketplaces for public NFT purchases, among the most popular, we have OpenSea and SuperRare, but also MagicEden and Blur.

The concept of utility in the NFT field:

Another important topic related to the world of NFTs concerns the concept of the utility of a given NFT. It is a simple image that the user could use as a profile photo on Twitter or something more. For example, some NFTs allow their owners exclusive access to online and offline events, or allow them to passively earn a certain percentage of future resales of the collection itself, or perhaps will be part of a project that sees the future creation of a video game or dedicated metaverse.

However, it must also be said that there are projects, among the most expensive and famous, that have no predetermined utility. This is the case with CryptoPunks and BAYC. For example, CryptoPunks is a collection of ten thousand pieces that were originally distributed for free, but are now resold at prices ranging around hundreds of thousands of euros depending on the rarity of the NFT itself. This collection has no utility other than being extremely rare and whose value is simply the result of supply and demand. So we could say that the utility in this case is mostly a matter of status symbol.

NFTs and future prospects.

You are probably thinking that this market seems more like a speculative bubble than anything else and you are fully right to think so. On the other hand, like any new sector, it is dragging along many doubts, stories of scams, and not so clear events, but if you think about it, it is the same identical thing that happened (and still happens) with the internet or social media.

We should not simply look at NFTs for the use they have today, as a highly speculative digital asset, but for the technology behind them: decentralization, traceability, and the ability to immediately verify ownership. Another advantage is also the ability to earn on any resale.

Let’s better understand these concepts with a brief example: today we are used to buying online courses on platforms such as Udemy and Coursera for a few tens of dollars, taking the course, obtaining our certificate and that’s it. In a future that I assure you is not too far away, we will instead be able to buy the same course through NFTs, use it, and obtain a completion certificate also in the form of an NFT, which attests in a proven way through blockchain the completion of the course, and also be able to resell it on the secondary market, perhaps even at a higher price, if over time the course has proved particularly valid or useful.

Another interesting evolution in the NFT and blockchain field will be SBTs, “Soul Bound Tokens”. SBTs are special NFTs that not only certify ownership but also a specific competence. One of the main peculiarities of SBTs is that they cannot be sent except by those who create them, and those who receive them cannot then send them to third parties. Referring back to the previous example, imagine having completed your course and receiving your certificate in the form of an NFT that is an SBT and therefore attests to your specific competence, but not that of a third party; or imagine that after completing your university studies, you will not need to request the paper diploma that certifies the achievement of your degree, but you will simply need to receive this digital token to do so.

Conclusions.

In this article, we have explored an overview of what NFTs are, what their current uses are, and what their future uses may be. When I talk about this subject, especially to the most skeptical, I ask them to make a mental effort and to overlook the speculative uses for which NFTs are famous today, but to focus instead on the technology behind this world and on the concrete utilities it will allow us, citing specific examples like those we saw earlier.

Finally, consider that more and more companies are approaching this sector and are doing so with very important investments. I’m talking about companies like Nike, Adidas, Ubisoft, and Facebook (now Meta), Starbucks, and many others, who are investing in creating their own metaverses, video games, and collections of NFTs. And if adoption is becoming increasingly mass, even by very important brands, there is probably a reason for it.