What exactly is an NFT?
Non-Fugible Token: Definition
The abbreviation NFT stands for non-fungible token, or non-fungible token in French. It is therefore different from a fungible token.
A bitcoin unit is therefore interchangeable with another bitcoin unit, just as a one euro coin is exchanged for another one euro coin. This is fungibility.
Conversely, a non-fungible token is a token that is issued on a blockchain and meets unique characteristics: it is metadata. An NFT is therefore a unique token.
Meaning of NFT
An NFT is linked to a virtual or physical object: its metadata therefore contains the description of this object, in the form of code or link. In reality, the concept is very simple and can be compared to a password. In theory, all passwords should be unique and these represent doors of access, to accounts, to games, to phones, etc. So an NFT is similar to a password, which contains access to a product:
- a virtual work of art,
- a certificate of authenticity,
- Guarantee,
- a key to a server.
Having an NFT means you have a key.
What is the origin of non-fungible tokens?
A first technological standard on the Ethereum blockchain
The term non-fungible token saw its first appearance in 2016, with the creation of a technological standard deployed on the Ethereum blockchain, ERC-721. A code that allows this uniqueness to be registered and therefore deviates from the ERC-20 standard, which is specific to fungible tokens.
Jennifer and Kevin McCoy, the creators of the first form of NFT
However, the first NFTs existed earlier. In 2014, artist couple Jennifer and Kevin McCoy created the first form of NFT on the Namecoin blockchain (a copy of the Bitcoin network that has since been somewhat abandoned), ‘Quantum’. A generative work of art.
How do NFTs work?
The smart contract process
To create an NFT it is usually necessary (especially on blockchains such as Ethereum or compatible) to create a smart contract (an autonomous program). The latter makes it possible to issue (or store) tokens with a serial number or an identification code.
Since the issuance action is related to a transaction, it requires resources and therefore the payment of fees: ether, in the case of Ethereum.
The Taproot update process
However, other blockchains use different processes. We are thinking in particular of Bitcoin, which, after the implementation of the Taproot update, makes it possible to associate identifiers with satoshis (the smallest unit of Bitcoin).
Since the launch of these “Registrations”, the Ordinals have aroused the enthusiasm of speculators, but also of certain communities of creators, attracted by the Bitcoin culture.
Where do you store an NFT?
The NFT lives on the blockchain
By definition, an NFT lives on the blockchain. However, this is not always the case for the product it is associated with. Explanation: You’ve probably already seen the image of a Bored Ape Yacht Club NFT.
The image is stored on IPFS
The image is present on the blockchain in the collective unconscious. In fact, it would be possible, but… this is not the case for this particular collection. If the token is natively on the blockchain, the image is stored on IPFS, a decentralized network of servers.
Operates hosted on centralized servers
In practice, works related to certain NFTs can even be hosted on centralized or personal servers, such as Google Cloud, Amazon or OVH servers. In this case, this content is prone to high risks of disappearance, in case the owners of these servers (or the providers) decide to terminate their hosting.
So the content associated with an NFT is only truly considered secure if it is stored on a network of decentralized servers, such as IPFS or especially on the blockchain. As is the case, for example, with Cryptopunks, Mooncats or Onchain Monkeys.
Which Wallets to Store NFTs?
From the user’s point of view, NFTs can be stored in wallets just like regular cryptocurrencies or fungible tokens.
There are several types of wallets for storing Ethereum, the best known of which are hot wallets (i.e. wallets connected online), such as:
- Metamask,
- Rainbow,
- Coinbase Wallet.
It is entirely possible to store ether on physical wallets (hardware wallets) such as Ledger or Trezor, which are often more secure.
What use are NFTs?
NFT in digital art
The use cases for NFTs are numerous, as it is a technology that serves several underlying assets: that is why today an NFT is most often thought of in the case of digital art, which already represents a multi-billion dollar market.
NFT and video game
But an NFT can also represent a virtual resource in a video game: in this case, it theoretically allows a player to extract their resource into another compatible game or transfer it to another player as part of a transfer. An NFT represents ownership of an asset.
Real Estate and NFTs
It can also represent share ownership: companies like RealIT tokenize real estate shares, such as a SCPI. With this technology, these assets become much more liquid, as there are secondary marketplaces that are open 24 hours a day.
An NFT could very well represent a membership card, which could provide access to virtual servers (like Discord) or even physical stores and private events.
The use of NFT in the luxury sector
Capital readers already know the French start-up Arianee, which allows brands to associate certificates with their physical products, digital passports that are especially useful as part of a guarantee or to certify their authenticity. A very practical use case for luxury products.
CryptoPunks, Bored Ape… what are collectibles?
Collectible Anglicism defines NFTs that are issued serially as part of a collection. For example, there are 10,000 Cryptopunks (with different traits from each other) or 10,000 Bored Ape Yacht Club, just like there isn’t just one Pokemon or Sayan.
What’s the point of buying NFTs?
Speculating on works of art
As we saw earlier about the diversity of use cases for NFTs, there are several reasons to buy an NFT.
For those more interested in art or digital culture, it can be speculation, hoping that a work gains value, because of its creator, because of its rarity or its place in the world.
Buying NFTs out of pure passion
Amateurs buy NFTs out of pure passion, without the desire to resell, out of a love for art or digital culture (particularly crypto art). It is also possible to purchase NFTs for the utility associated with the tokens: joining a private club or a next-generation loyalty program.
How to buy NFTs?
OpenSea, the most famous marketplace
There are a whole range of NFT marketplaces, some of which are specific to certain cases or certain blockchains.
The best known remains OpenSea, born in 2017, criticized for its lack of innovation, its shortcomings in the fight against counterfeiting or its lack of attention to artists, but still essential. However, it has lost market share to competitors Blur, more of a trading platform, or Magic Eden, originally dedicated to the Solana blockchain and now accessible to Ethereum and Bitcoin NFTs. Older but compatible with an unparalleled variety of blockchains, Rarible is not to be forgotten, offering access to the same collections as other marketplaces.
Foundation, Markersplace, SuperRare… marketplaces for art lovers
Art lovers are more frequent visitors to the marketplaces of the Foundation, Makersplace, SuperRare, Nifty Gateway, all historical, or the more recent ones such as Verse, Alba or those, more thematic or linked to artificial intelligence, such as Braindrops or K011.
Tezos blockchain enthusiasts most often use Fxhash (now also compatible with Ethereum) or Objkt.
It is worth remembering that NFTs can also be acquired in physical locations: in Paris, the NFT Factory, the Iham Gallery, the Avant Galerie, Buy Art or the Charlot Gallery are all places that have a permanent or one-off NFT offering present.