Web3 101: Part VI- Intro to NFTsOct 18, 2021·Last updated on Oct 18, 2021
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If there’s one part of the crypto world that is already turning heads, it’s the NFT space.
While NFTs of digital artwork have been capturing the bulk of mainstream attention, that is but one of their many use cases. From allowing musicians to own their masters to securing our digital data, NFTs may soon make their way into every facet of our lives.
What Are NFTs?
NFTs, or non-fungible tokens, are certificates of ownership recorded onto a blockchain.
We’ve covered the ins and outs of blockchain in a previous Web3 101 article, but for the sake of NFTs, let’s think of the blockchain as a giant tackboard in the middle of town. Every time you purchase an item, you receive a certificate of ownership and tack it up for everyone to see. This certificate contains information about the item, including a brief description, its original creator, its current owner, and a list of any previous owners.
If you sell that item, the new owner adds their name to the certificate, and everyone sees that the item has changed hands. Because this is all done publicly, stealing something or trying to add your name to an item that you do not actually own is extremely difficult. With the whole town watching the board, everyone knows who owns what and can see every transaction that takes place.
To put this back into crypto terms, these publicly verifiable certificates of ownership are non-fungible tokens. NFTs can be used to assign ownership over anything, digital or physical.
For a deeper dive into how NFTs work, check out our article What Are NFTs? Changing the Value of Sights and Sounds.
Why Do We Need NFTs?
At first, this might seem a little unnecessary. But when we examine the possibilities of this new technology, we find that NFTs actually solve issues that have plagued the digital world since its inception.
It’s no secret that digital assets are easily replicable. JPEGs, MP3s, and digital documents can all be copied at will. When these files contain valuable intellectual property, such as artwork or music, the ability to duplicate them in their entirety undermines their value. We cannot distinguish the original version of a digital asset from its duplicates.
This is one of the most challenging issues that digital content has always faced — there has been no way to make digital assets scarce. Without scarcity, or the state of demand outweighing supply, digital assets were considered virtually worthless. But thanks to NFTs, that is now changing.
To accomplish this, non-fungible tokens utilize one more vital piece of information - a hash. This hash is a unique identifier that represents the asset on the blockchain, and appears as a long string of letters and numbers. Even if the content associated with an NFT is duplicated (i.e. right click and save a JPEG), the hash is unaffected. That remains untouched on the blockchain as the one and only version.
By tying a digital asset to a hash, we can single out the original version regardless of how many duplicates of the correlating content are created. Across the entire blockchain, any user can look up an asset by searching for its hash and easily verify its authenticity and its owner.
When you purchase an NFT, you are taking ownership over this hash. This updated ownership is then broadcasted for the entire blockchain to see, giving you publicly verifiable proof of ownership over that NFT. This isn’t unlike receiving a deed to a house or a vehicle’s certificate of title, but there’s one big difference — NFTs don’t need a third party.
By securing ownership of an asset on the blockchain, we are removing the need for a centralized figure or middleman to keep track of this information. Blockchain allows us to keep a tamper-proof record of who owns what without having to place our trust in a single person, company, or organization.
As we have covered in previous Web3 101 articles, centrally controlled data can be tampered with, used for ulterior purposes like monetization, and fall into the wrong hands through hacks and data breaches. By removing these centralized entities form the equation, blockchain offers a much safer and more efficient method of storing and securing information.
At their core, NFTs are a way to record and prove ownership of assets without the use of a third party.
What Can We Do With NFTs?
By bringing scarcity and ownership to digital assets, NFTs are fundamentally changing what they can do and how we value them.
NFTs and the Creative World
In the creative world, NFTs are giving artists new ways of monetizing their work. Because their creations can now be owned, something interesting happens — people want them for more than just consumption. They want them for their social and sentimental value.
Musical artists, who generally rely on touring for the majority of their income, can now mint songs, videos, and artwork directly as NFTs. Instead of relying on streams and live shows, songs themselves can be valued as unique works of art on marketplaces like Catalog.
This extends to all sorts of digital mediums. By minting his artwork as NFTs, Beeple made millions off of images he had initially posted to Instagram for free. Photographers like Artistic Visuals can sell their work to a global market without having to rely on physical prints. And digital media artists like Emotionull can create virtual reality scenes to be purchased as NFTs. Yes, they are as cool as they sound.
NFTs and Identity
But NFTs are much more than a tool for monetizing art. Like we touched on in our last Web3 101 article, NFTs offer a safer and easier way for us to own and control our sensitive information.
Remember the last time you went to the DMV? You probably had to provide five or six different documents to verify your identity. Instead of searching for your physical birth certificate and passport, what if you had trustworthy digital versions of them? Blockchain and NFTs offer a way to create exactly that. If we stored these documents as NFTs in our crypto wallets, they would be more secure than their paper-based ancestors and much more difficult to fake. They’d be a lot easier to find, too.
The final ingredient here is adding an NFT domain to your wallet to make it truly your own. By default, wallet addresses are long strings of letters and numbers. But when you add an NFT domain to your wallet, you can effectively replace that complicated address with something personal and readable, like YourName.crypto.
NFT domains, like those from Unstoppable Domains, allow you to replace your wallet address with a name that you actually identify with. Being able to spell and pronounce it is nice too. Not only does this make them easier to use, it adds a much needed layer of personalization. If our wallets are to become the holders of our digital identities, then they should feel like it.
If you want a more detailed explanation about Unstoppable Domains and a tutorial on how to set up your own, check out this review on 99Bitcoins.
Just the Beginning
In the crypto community, it’s common to hear people say “we’re still early.” And even with the explosive growth NFTs have seen over the past year or so, it looks like this phrase still applies. We have just begun to scratch the surface of what decentralized ownership and digital scarcity can unlock, but it looks like it will be revolutionary.
If you’re ready to grab an NFT of your own, head back to our homepage and start with an NFT domain for your wallet. And if you’re still working on the wallet part, we got you covered there too. Jump back to our previous Web3 101 article to learn all about them.