A NFT (non-fungible token) is data added to a file that creates a unique signature. It can be an image file, a song, a tweet, a text posted on a website, a physical item, and various other digital formats. This basically means that someone can own a digital file (and that it’s marked with code to differentiate it from any digital replicas). In order to determine what an NFT really is, we need to understand the concept of “fungibility.” The term might sound complicated, but it’s a simple idea that we can relate to our everyday lives.
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At its core, a fungible item is something that can be exchanged 1:1 with another item of the same classification/description.
Each fungible unit is essentially identical, and therefore interchangeable.
Currency is a perfect example of a fungible asset. Whether it’s your dollar bill, a dollar bill you found on the ground, or a dollar bill your crazy uncle keeps in his boot–each is worth 1 USD.
In addition to being interchangeable, fungible goods/assets are divisible. This means they can be added or divided without changing the fundamental nature of the item. A dollar can always be divided into any combination of coins totaling 100 cents and represent the same value.
Another key feature of fungibility is that slight physical differences between fungible assets have no real impact on their perceived or agreed value:
- A serial number on a banknote plays no role in impacting the face value when you try to use it to pay for anything, and has no intended effect on their utility.
- A crisp new $20 bill from the ATM will purchase just as much in a shop as one that’s crumpled, tattered, and passed through countless hands for a decade.
- Whether a €2 coin has the French, Dutch, or Austrian design on the reverse side has no bearing on their legal value in any countries within the European Union.
Things that are not directly interchangeable or replaceable are known as non-fungible.
Unlike fungible assets like Bitcoin, non-fungible items are characterized by:
- Unique, verifiable identity
- Provable scarcity
In many ways, non-fungibility is tied closely to identity, be it the identity of the asset itself, its owner, or its creator. When things are non-fungible, each unit has its own unique identity that impacts its core valuation. Differences in appearance, rarity, utility, and many other properties directly affect the identity of a unit, and in turn, its value.
While NFTs seem like they’ve arrived out of nowhere, they do, in fact, trace back a few short years.
2012: Colored Coins
If NFTs were a superhero movie, then Colored Coins would be the origin movie. Initially issued on the Bitcoin blockchain for as little as a single satoshi, the smallest unit of currency, Colored Coins had a lot in common with current NFTs.
While not as sophisticated, the idea was to use the blockchain for assets like digital collectibles, coupons, property, company shares, and more. Colored Coins were mentioned in a 2012 article by Yoni Assia. Titled “bitcoin 2.X (aka Colored Bitcoin) — initial specs,” it describes the new technology. Later that year, a paper from Meni Rosenfeld titled “Overview of Colored Coins” discussed them as the new asset class they would become.
In 2014 Robert Dermody, Adam Krellenstein, and Evan Wagner founded Counterparty, a peer-to-peer financial platform and distributed, open-source internet protocol built on the Bitcoin blockchain. Counterparty allowed asset creation and had a decentralized exchange, thus providing a way for users to create their own tradable currencies. It had numerous ideas and opportunities, including meme trading without counterfeit issues.
2015: Spells of Genesis on Counterparty
In April 2015 Counterparty partnered up with the team creators of Spells of Genesis. The Spells of Genesis game creators were not only pioneers for issuing in-game assets onto a blockchain via Counterparty, but they were also among the first to launch an ICO. The creators helped fund the development of Counterparty by introducing their own in-game currency called BitCrystals.
2016: Trading Cards on Counterparty
In August 2016 new trends began to emerge. Counterparty teamed up with Force of Will, a popular trading card game, and launched their cards on the Counterparty platform. Behind Pokemon, Yu-Gi-Oh and Magic, Force of Will was the 4th ranked card game in North America according to sales volume. Their entrance into the ecosystem, where they had no prior blockchain or cryptocurrency experience before, signaled the value of putting such assets on a blockchain.
2016: Rare Pepes on Counterparty
In 2016, memes entered the blockchain. In October of 2016, memes started to make their way onto the Counterparty platform. People started to add assets to a particular meme called “Rare Pepes.” Rare Pepes are a meme featuring an interesting frog character that has acquired an intense fanbase over the years. What started out to be a comic character named Pepe the Frog, has now steadily become an internet sensation as one of the most popular memes. By early 2017, with Ethereum gaining prominence, Rare Pepes started to be traded there as well. Portion’s Founder, Jason Rosenstein, along with Louis Parker, ran the first live Rare Pepe auction which was held at the inaugaral Rare Digital Art Festival. CryptoArt was born with the Rare Pepe Wallet and it was the first time creators around the world could submit and sell their own artwork. It was also the first time digital art could have intrinsic value.
Building on the popularity of the likes of the Rare Pepe Directory, creative technologists John Watkinson and Matt Hall created a set of 10,000 unique characters on the Ethereum blockchain, whereby no two were the same. The 10,000 Cryptopunks were rapidly snapped up and traded online.
The influence of the Cryptopunks project helped inspire the NFT ERC-721 standard and establish the current crypto art movement. You can follow the various trades that continue on the Cryptopunks project on a dedicated Twitter account. No, the prices for the individual characters aren’t exorbitant like some of the newer NTF creations. But it certainly helped set the template.
Following Cryptopunks, the next big NFT project involved cats (hey, it is the internet!). To quote its official description, CryptoKitties is “a game centered around breedable, collectible, and oh-so-adorable creatures [called] CryptoKitties! Each cat is one-of-a-kind and 100% owned by you; it cannot be replicated, taken away, or destroyed.”
Widely covered in the mainstream media, this project — which eventually spun out as a $12.5 million venture dollars-attracting startup called Dapper Labs — set the standard for NFT projects to come. As of the date this article was published, the most a single CryptoKitty has ever sold for is $390,000.
A decentralized, Ethereum-based VR platform, Decentraland lets players buy up empty parcels of 3D virtual space, measuring 10 meters by 10 meters. Its Initial Coin Offering (ICO) raked in a massive $26 million in just half a minute.
In Decentraland, gamers can explore, build, play games, collect items, and more. Imagine Minecraft, but for denizens of Burning Man instead of 13-year gamers, and you won’t be a million miles away.
2018-2021 : NFT goes mainstream
Between 2018 and 2021 NFTs slowly move into public awareness before exploding into mainstream adoption in early 2021.
The seemingly underground movement that was taking the crypto community by storm has slowly been transitioning into more mainstream art. This transition reached an inflection point in Valentine’s day 2018 when artist Kevin Abosch partnered with GIFTO for a charitable auction. The partnership led to a $1M transaction of a beautiful piece of CryptoArt called The Forever Rose.
Mr. Abosch continued to raise the stakes when he started using a combination of the Ethereum blockchain with his blood in a project called “IAMA Coin”. Abosch has not been the only artist adopting this exciting form of expression. It has slowly been gaining traction with artists exciting to push their creative boundaries.
The NFT market is more efficient and more liquid than incumbent methods of transferring assets. Numerous platforms have surfaced online, each hosting differentiators for creators and collectors alike. The main area of disruption is focused on limiting centralized fees where traditional art brokers, auction houses, often take up to 40%. Opensea is considered the largest marketplace for art, music, domain names, collectibles, and trading cards. Mintable’s platform has its main focus on making the minting process super straightforward for the creators. Portion is positioning itself to be an NFT platform that bridges NFTs, DeFi, and DAOs where the holders of the governance token $PRT — the community — are in charge. Other platforms like, Niftex allows users to buy fractions of NFTs or “shards,” which are ERC20 tokens representing a piece of the full NFT.
Technology and Token Standard
NFTs have become more sophisticated than ever, evolving from static pictures into actual assets with real functionality in and across games.
Beyond their basic appeal as unique digital items that you actually own, the potential of NFTs can be seen in these 3 key characteristics:
- Ownership: NFTs are held on your own personal blockchain address, which you control with your private key. Server outages, lack of support, or account bans cannot take NFTs away, because they aren’t held in a centralized server. You are free to do as you like with your NFTs, including trading, selling, or giving them away.
- Transparency: A blockchain is essentially a decentralized database, so records of token creation and transfers are publicly visible with blockchain explorers. This makes rarity and scarcity easy to verify, allowing people to be certain an NFT is authentic.
- Interoperability: When a token standard is shared by multiple different entities, they will all be able to utilize the NFTs created by each other in ways that make sense within their game worlds.
ERC-721 is a token standard that was introduced in 2018 to make NFTs interoperable with various system such as wallets and market places.
ERC721 tokens can be used in any exchange, but their value is a result of the uniqueness and rareness associated with each token. The standard defines the functions
tokenOfOwnerByIndex , and
tokenMetadata . It also defines two events:
Subsequently the more efficient ERC-1155 token standard, were developed to streamline NFT creation and distribution. These standards include important technological practices, like the use of metadata to expand upon a token’s identifying characteristics.
Metadata can be utilized in some incredible ways, such as fetching token images from an off-chain source, lessening the strain on the blockchain.
Countless properties can be tracked via metadata, from the wingspan of your digital dragon to the color of your high-fashion sneakers. It’s truly only limited by the imagination of asset creators and game/platform developers.
ERC-1155 packs the innovative punch of metadata with a focus on streamlining everything, resulting in lower network fees.
A major technological leap, ERC-1155 enables:
- The issuance of multiple different tokens within one smart contract
- The transfer of up to 100 unique tokens in a single transaction
- The creation of both fungible and non-fungible tokens
Thanks to the evolution of token standards and easy-to-use minting platforms, the creation, deployment, and trading of NFTs is blossoming into an exciting new realm filled with innovation and value.
Even though Ethereum as best-known as the blockchain for NFTs, there are growing communities of NFT marketplaces and creators on a number of other blockchains. Those blockchains being used for NFTs include:
- Binance Smart Chain
- Flow by Dapper Labs
Note that currently when you mint an NFT on one blockchain it is pretty much not possible to transfer them to another blockchain. However as the technology improves and things such as cross-chain bridges become more popular and numerous it could be possible in the future to move an NFT to pretty much any blockchain that supports their creation and storage.
While the history of NFTs is intriguing, the future of NFTs has endless opportunities with the advent of the metaverse, it will be a technology vital to everyday life. And if you want to learn how you can make money in NFT as a developer, checkout this video on my channel.