What Exactly is an NFT?
NFT stands for Non-Fungible Token. The meaning of non-fungible is that it is unique and irreplaceable. Cryptocurrencies and physical currencies are fungible unlike NFT, as they can be traded for one another and equal in value. Whereas NFT is a single, unique data that utilizes technologies that allow digital content to be stored on blockchain, mainly on Ethereum. They are a type of crypto asset on the Ethereum blockchain.
An NFT is a digital asset that can represent a real object like music, art pieces, selfies, videos, in-game items and more. Due to its non-fungible nature, NFTs are one of a kind and limited with unique identifying codes, this creates digital scarcity. Even a tweet can be converted to a NFT to be traded online.
Some use cases of NFTs are:
- Nyan Cat – The popular Nyan Cat meme in 2011 was remastered as a one-of-a-kind digital rendition and sold at about US$590,000, at 300 ETH.
- Glenfiddich Whiskey – The whisky distillery sold bottles of whisky for $18,000 apiece with an accompanying NFT that has an artistic impression that allows the buyer to show off their purchase and to authenticate their proof of ownership.
- Jack Dorsey, CEO of Twitter’s first-ever tweet – The tweet that said ‘just setting up my twttr’ posted by the CEO of Twitter in 2006 was sold for over $2.9 million
How Does It Work?
As digital assets available online, they are easily accessible and viewable. Anyone can take a screenshot or download it. However, with an NFT, it allows the buyer to own the original rights of the digital asset. NFTs exist on a blockchain, and they are normally part of the Ethereum blockchain. When it is logged onto the blockchain, all transactions can be recorded on-chain which helps to create a ledger of origins and price history. NFT creators mint their digital asset on an NFT marketplace as it provides them with the ability to collect profits off the resale value. It is also a way for them to showcase and sell their content.
However, it will only work on blockchain as it helps to provide full ownership of the digital asset. With exclusive ownership rights, NFTs will only have one owner at each point of time. NFT owners will be able to digitally sign their artwork and store information in their NFT which will only be viewable by anyone who buys the NFT.
What Does Minting Mean in NFT?
Minting is meant by the process of creating and producing something. In terms of NFT, it is meant by creating an NFT by validating information, creating a new block, and recording that piece of information into blockchain by creating a smart contract. The smart contract would contain a list of information like creator of work which helps them receive royalties each time the NFT goes through a transaction.
Once the NFT is minted, it will be listed in the NFT marketplace. Some NFT marketplaces that are gaining popularity are OpenSea, Nifty Gateway and Rarible.
The process of minting NFTs might differ depending on the platform you are using, but you will need a unique digital asset, tokens, non-custodial hot wallet and NFT marketplace.
What is Gas Fee?
When a NFT is listed on the marketplace, users must pay a ‘gas fee’ for using the blockchain. Gas fee, also known as ‘gwei’ is measured by the amount of computational effort needed to execute operations on the Ethereum network.
Each Ethereum transaction will require certain computational resources, thus each transaction will have a gas fee to it. They are typically paid in Ethereum’s native currency, also known as ether (ETH). Gas fees are mandatory to keep the Ethereum network secure by preventing any spams in the network. To avoid any accidental or hostile infinite loops or computational wastage in code, transactions would set a limit to how many computational steps of code execution it can be used.
Why Are Gas Fees Expensive?
Gas Fees are high due to the popularity of Ethereum, it is determined by the supply and demand on Ethereum. With a higher number of users transacting on the network, the price of gas would naturally go up.
Benefits of NFTs
There are several benefits that come along with NFTs, NFTs can
- democratize ownership,
- sell unique digital assets, and
- store and preserve value
One of the main reasons why NFTs surged in popularity is due to the ease of ownership and sale of digital content. Digital creators used to find it difficult to monetize their digital work but now with NFTs, it has made it simple and accessible for them.
Sell Unique Digital Assets
NFT has made it easier for creators to create and sell their work without worrying about counterfeit. NFT cannot be duplicated due to its unique identifier and the blockchain technology behind it that makes it impossible to hack, alter or delete.
Store And Preserve Value
You can store the NFT’s value in a tangible manner by preserving the value digitally. While it might not be a fixed set of rules when it comes to valuating an NFT, it boils down to some factors like rarity, utility and popularity that can accrue over time.
Disadvantages of NFTs
While it is now extremely common to hear about artists making a huge profit off NFTs, it is still laborious to create one. The cost of creating an NFT increases as the Ethereum network become more congested and computational effort becomes larger.
Even though the impact NFTs have on artists are positive at the moment, there still isn’t enough data to determine if NFT’s benefits will outweigh the potential disadvantages. However, there have been cases of NFT scams reported. Some examples of the NFT scams are the emergence of fake marketplaces and the impersonation of the actual seller to sell copies of their artwork at a lower price. In 2022, a hacker stole $1.7 million in NFTS on OpenSea from a phishing attack
Another risk is the negative impact NFT can have on the environment. As crypto mining is done on a high-powered computer that require immense power will undoubtedly affect the environment eventually.
The Future of NFT
It is expected that as technology advances and evolves, the technology of crypto wallets and navigating decentralized finance will become easier to use over time. This will result in a surge of NFT users when the convenience and accessibility to NFTs increase.
With its current use case of applying ownership to digital assets, it wouldn’t be surprising if NFTs would displace industries that focuses on ownership of artists/creators as they maximize this technology to their advantage.
Along with the positive sentiments, there would be the skeptics. While NFT is still a relatively new concept which regulators are taking a step back by watching the space closely, but not fully regulating it now. However, with its explosive popularity, it is possible that regulators might come in to regulate the operating entities and put in place certain trading regulations in the future.
NFT in Asia Pacific
Asian countries are slowly evolving into a cashless and digitized society as compared to the western countries which could suggest why the adoption of NFTs are much more widespread. The explosion of NFT in 2022 has suggested the NFT adoption in the East could potentially surpass the West very soon. For example, in China where cryptocurrency transactions are considered illegal, NFTs are still allowed if there is no quick resale.
Singapore as a crypto hub has always been one of the fastest countries to adapt to new developments within the blockchain technology. Brands and startups in Singapore are trying to secure an early mover’s advantage.
How Storm2 Can Help
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