What is an NFT?
Non -Fungible Tokens ( NFTs ) are representations or ownership of a single asset. An NFT can be a completely digital artistic work (photograph, text, video, etc.) or it can be a digital representation of a work of art that authenticates possession (paintings, vehicles, properties, etc.)
These NFTs have the property of not being exchangeable with each other, they can only be exchanged for a number of cryptocurrencies . What NFTs provide is proof of authenticity and ownership of an asset within the immutable system that is a blockchain. Currently the most used blockchain to create NFTs is that of Ethereum due to its flexibility and how easy it is to create a smart contract .
We must understand what the term non-expendable indicates . That an asset is non-fungible means that the asset is interchangeable between users, it is unique and it is not divisible . A home is non-fungible, since we can sell it (exchange it between individuals) it is unique and cannot be divided into parts. Even if 100 copies of the same digital object (let's say a canvas) are sold, each one will be unique, firstly, because it will have a unique identifier and secondly, because it can only have one owner.
That a non-fungible token is stored within a blockchain is very nice . It allows to know who is the current owner and who have been the previous owners . In the face of any scam or illegitimate marketing attempt, you can quickly see who it belongs to . But this is also ideal for collectible objects, such as stamps, paintings, stickers, etc.
Origin and development of NFTs
Although many believe that the first platform that supported smart contracts was Ethereum , this is a mistake. Bitcoin is the first cryptocurrency developed and the first to support smart contracts , although it is true that its attributes are more limited than in the Ethereum blockchain. Colored Coins are the best use of smart contracts within Bitcoin , giving rise to the first tokens.
The creator and ideologue of the structure of the Colored Coins in Bitcoin was Yoni Assia , who is the founder of eToro. Some of the first Colored Coins were Bisq, OmniLayer or RSK . Although Scrypt, the programming language of Bitcoin does not support NFTs very well, we have projects like RarePepe , a token-meme that is still working or CounterParty as examples of NFTs within Bitcoin.
Within Ethereum, NFTs are popularized due to the simplicity of creating a smart contract and how rich they can be. Thus, it becomes the most used blockchain for the creation of non-fungible tokens. For a harmonization of this type of tokens, the ERC-721 and ERC-1155 are created, which establish the guidelines for the creation of a smart contract in order to generate non-fungible tokens.
The Tron, EOS or Tezos blockchains also allow the creation of NFTs .
How does an NFT work?
The operation of NFTs depends on a blockchain such as Ethereum or Tron that allows smart contracts to be created with relative ease. As we have discussed, NFTs can be created on the Bitcoin blockchain, although they have limited capabilities.
Although almost all current blockchains support smart contracts , the properties or how they are written may differ. The difference is due to the algorithm used for creation or the programming languages supported by each blockchain. But despite these differences of each blockchain, the basis for all of them is established in the ERC-721 and ERC-1155 , which are the standards created for Ethereum, but which are imported and adapted to another chain of blocks .
The NFT standards are as follows:
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ERC-721: Establishes the standard for the issuance and trading of non-fungible tokens within the Ethereum blockchain
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ERC-1155: Extends the ERC-721 standard and allows fungible tokens, non-fungible tokens and partially fungible tokens to be created within the same smart contract structure . In addition, it allows different types of these tokens to be created within the same smart contract , regardless of their fungibility properties.
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How to create an NFT
To simplify the way of creating NFTs , platforms have been developed where the process is simple and intuitive . These platforms allow you to create these non-fungible tokens in a simple way and adjust the different parameters according to the criteria of the user who is creating the token. This is made possible by the ERC standards outlined above that set the guidelines for creating non-expendable items.
Due to the simplicity in creation and interchangeability through these platforms, the trade and development of NFTs has seen tremendous growth. Currently the platforms that have the most movement are OpenSea and Rarible , where thousands and thousands of NFTs can be found.
The value of all NFTs on the Ethereum blockchain is estimated to exceed $2 billion .
Some of the more interesting projects that exploit the capabilities of NFTs quite well are Flow, Enjin, and Decentreland . Flow uses its own blockchain , while Enjin and Decentreland run on the Ethereum blockchain . Then we have Cryptokitties, the first big NFT project that caused so many problems for the Ethereum blockchain.
What are the uses of NFTs
The uses of NFTs are still fairly basic and limited , as this ecosystem is still expanding. The main use is the tokenization of digital and art works of art and physical objects by recognizing the ownership of the object. Dapps (Decentralized Applications) also use these elements to generate investment products and other elements.
For digital works of art, audiovisual content, or purely digital books, NFTs enable scarcity and ownership registration . The exchange, access or use could be made only by the one who has acquired the property.
Other uses can be to add liquidity and certification of ownership of goods where there is a shortage such as art, real estate, rare collectibles, etc. NFTs could also be used to create a digital identity where an individual's data is stored. For example, the DNI could evolve into a NFT that does not require updating and that can expand capabilities, such as a criminal record or if we have obtained a motor vehicle driving license.
CryptoKitties: The cats that almost brought down the Ethereum network
Although there is now a hatching of the NFT ecosystem, the truth is that the first mass adoption of NFTs was CryptoKitties . For those who do not know what this is about, it is a platform that allows you to collect and store unique digital cats with different aspects, sexes and characteristics, and even "generate" new kittens.
All the cats on the platform have the property of being unique and not being interchangeable with each other (basic precepts to be a non-fungible token). Logically, these cats cannot be divided.
CryptoKitties was opened to the public in October 2017 and its popularity was meteoric as it was a fun implementation of NFTs. In December 2017, its popularity was such that it generated such a volume of transactions that it caused a strong congestion in the Ethereum blockchain.
Development of Ethereum has the ability to process between 12-20 transactions per second . If this volume of transactions is exceeded for a long time, it ends up generating network congestion , or what is the same, the inability of the network to process the transactions and causing an increase in the amount of Gas necessary to validate the transactions.
To give us an idea, in the first week of December there was an increase of more than 6 times the transaction processing capacity of the Ethereum blockchain for hours. As is logical, this generated a huge problem, since more and more transactions entered that could not be processed . It was even feared that the blockchain could be interrupted.
The developers of Ethereum themselves, the developers of Metamask, Infura and Grid+ joined the developers of CryptoKitties to implement an urgent scaling solution . It was possible to decongest the network, not without many difficulties and cost a lot of time. In addition to urgent scaling solutions, medium and long-term scaling solutions were also proposed , thus generating a roadmap of implementations that have served as the basis for the development of Ethereum 2.0 .
Final words on non-fungible tokens
Bitcoin is only 12 years old and Ethereum was only launched 7 years ago and they still have a long way to go . There are many challenges and difficulties that must be faced, one of them being the NFTs , which, as we have seen, put Ethereum on the ropes . Showing what happened in the Ethereum blockchain that scaling solutions are needed in cryptocurrencies, hence the development of Ethereum 2.0.
Note that NFTs are ideal for verifying ownership of a valuable item such as art and its authorship. Storing it in a public, decentralized, censorship-resistant system prevents anyone from illicitly claiming ownership or authorship of an item . Ownership and authorship of any NFT can be quickly audited.
Other integrations of non-fungible tokens are being worked on, such as for real estate, real estate or a digital user identification system. There are many legal aspects and privacy issues that still need to be ironed out in these latter aspects.
