One of the most discussed technologies today is NFT. Let us examine what NFTs are, how they work, and discuss their uses, weaknesses, potential, and whether making money is possible on this technology.
Table of Contents
What is NFT?
NFTs are an acronym for non-fungible tokens. Non-fungible simply means non-interchangeable. So a non-fungible token is a token that acts as a certificate of ownership representing a unique digital asset that cannot be replicated or replaced with something else. For more info, read: what are NFTs, and why do they have value?
How NFTs work
The NFT space is still evolving and is subject to improvement in areas such as security and storage. Technically speaking, the process of how an NFT work is a complicated one. The purpose of this section is to provide an overview of the method by which an NFT functions using the blockchain and other third-party services providers.
The non-fungible token representing a unique digital asset points out to the file that contains that digital asset. The token is stored on the blockchain (on-chain), a public, immutable and, secure database, while the file is stored off-chain using a centralized data storage system or often on-chain using a decentralized one.
The non-fungible token stored on-chain contains metadata such as the digital asset name, description, traits, and link. The blockchain record allows others to verify the ownership of a specific digital asset or NFT.
The file can be stored using either a centralized or decentralized storage system, and with both come advantages and disadvantages. In either method, the NFT owner must trust the party responsible for storing his digital asset and rely on these services to continue operations indefinitely without technical breakdown or security breaches, or legal battles.
Anyone can mint or create their own NFT or unique digital asset on Opensea, the leading and most popular NFT marketplace. All that is needed is a crypto wallet such as Metamask, some Ethereum. Then connect the wallet to the Opensea platform and follow the steps.
Who needs NFT where is it used now?
NFT token technologies allow users to own any digital product, make it possible to buy and sell, or use it themselves. Therefore, tokens will be beneficial to anyone who wants to become the owner of any digital information.
In addition, tokens allow potential buyers to financially support their favorite artist or content creator. Owners can post their digital assets on blogs and social networks, use them as an avatar in the metaverse and play to earn games.
We will look at the use of technology in digital art, games, virtual universes, and see what can be collected using blockchain certificates.
NFTs in games
NFT technologies have recently captured the gaming industry and influenced its development in their own way.
In the gaming industry, tokens are used when making in-game purchases so that the player can confirm their possession of achievements: weapons, all kinds of modifications, characters, skins, and buildings. The mechanism allows players to transfer game items between their accounts, as well as resell them. It is important to understand that the player does not have rights to this item, all copyrights are assigned to the developer. However, the token confirms the ownership of the item by a specific player inside the game.
In addition to making transactions using technology, NFT games on the blockchain are gaining popularity today. Such games allow you to earn. The game grants users ownership of any game add-on, which can be purchased in 3 main ways:
1. By creating or displaying a new character.
2. By purchasing virtual items in marketplaces.
3. You can unlock or earn this add-on
All three methods allow the player to obtain individual ownership of it, which can then be exchanged, sold, and bought, making a profit from this in the form of cryptocurrency.
There are NFT games that you don’t need to invest in to make money. Such games are also called Play-to-Earn. The game participant receives his remuneration in the form of NFT or token, the amount of remuneration grows in proportion to the time spent in the game.
NFT and art
NFTs allow becoming the owner of digitized works of art. As a result of the completion of the transaction, the token will contain information about whether you have acquired the right to own the painting and the amount you paid. This information will be visible to the public, demonstrating that you are the rightful owner of the artwork.
Recommended reading: NFT Art Market: Best NFT Artists List.
NFTs and virtual universes
The metaverse is a vast virtual space built to replicate our physical universe. It creates a sense of presence in real-time, as well as the effect of social interaction: all kinds of events, galleries, festivals, parties, communication with people.
The main difference between the metaverse and virtual games is that developers create and own everything. However, ownership in the metauniverse is concentrated in the hands of all users and each one individually.
Virtual universes are the ecosystems of the future. The main difference between the metaverse and virtual games is that developers create and own everything. However, ownership in the metauniverse is concentrated in the hands of all users and each one individually. Users can create events, add their virtual objects and digital assets paid with cryptocurrencies.
The essence of such meta-universes is to provide economic and social interaction between all users. Today, such universes are actively developing, and the economy is integrating into them. For example, one can create an architectural object, tokenize it, and put it up for sale on various cryptocurrency marketplaces.
Decentraland is the most popular metaverse powered by smart contracts and digital assets. It has its own cryptocurrency MANA, which allows Decentraland to be a very autonomous platform, as well as to carry out various financial transactions and initiatives throughout the metaverse.
Problems of the NFT world
Despite the advantages and opportunities that the NFT universe provides, several problems still exist.
The main problem of the whole sphere of cryptocurrency is its environmental unfriendliness. Mining cryptocurrency requires a lot of electricity, and blockchain servers work around the clock. The consumption of large amounts of electricity contributes to the increased release of carbon dioxide.
In this regard, many experts and eco-activists say that crypto technologies bring global warming closer. According to some experts, the Ethereum cryptocurrency with which most NFT tokens are associated consumes more electricity than some countries, such as Iceland. Today, many blockchain companies are working towards improving technologies that would reduce the impact of systems on the environment.
Cryptocurrencies, including NFTs, have attracted many scammers and hackers as they have gained value and popularity in the public sphere. If users don’t take security seriously, their NFT collections become easy prey for hackers. In addition, there are risks associated with the price volatility of NFTs and the instability of the NFT phenomenon in general.
Legal and technical difficulties
Since the phenomenon is very young, several legal and technical problems are still associated with NFTs.
The first is that buying an NFT does not in any way prevent other people from using the object to which the token is linked. Let’s say you purchase a digital painting with an NFT. You have its description, a link to the file, and a certificate of uniqueness, but anyone can download your digital assent if it is displayed on the internet. One possible solution is data encryption, but blockchain encryption is not a trivial task.
The second problem is that anyone can take a picture on the Internet, assign an NFT token to it, and sell it. The original creators themselves are often not asked. This would involve copyright infringement, and the image used without the digital asset used without the permission of its owner would have legal percussions unless NFTs are not recognized under the law in some jurisdictions.
NFT technologies allow you to digitize any product and make it more convenient to interact with it – possession, purchase, sale, confirmation of its originality. Tokenization adds exclusivity and value to an asset.
It is difficult to deny that this technology has already revolutionized the art and gaming arenas and the way we think of copyrights. Using tokens is cheaper, easier, and faster than physical assets to which they are attached.