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NFT Starter Guide: What is NFT and what are its application scenarios?

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For those of you who haven't quite figured it out in the last 12 months, we've put together a refresher course on the basics.

Original title: "How to popularize NFT to your family during the New Year? This is really not pyramid selling!"

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It's been a year since NFTs entered mainstream culture. For those of you who haven't quite figured it out in the last 12 months, we've put together a refresher course on the basics.

What is NFT?

NFT, which stands for non-homogeneous token, is a unique unit of data that uses technology that allows digital content -- from videos to songs to images -- to be recorded and authenticated on the cryptocurrency blockchain, primarily Ethereum. Once content is recorded on the blockchain, every transaction from transfer to sale is recorded on the chain, creating an easily accessible ledger of provenance and price history. The main impact of NFTs is to make it easy to own and sell digital content. For example, previously, digital artists could build a large following on social media, work freely commercially, and perhaps sell prints and other goods with their designs, but it was hard for them to directly monetize digital art because consumers asked, why would I buy something I could take screenshots of for free?

While the technology behind NFTs makes it easy to trade and sell images online, the real credit goes to the NFT community for creating a market for these digital assets, because technically, as many detractors have pointed out, digital images that have become NFTs can still be saved or captured at no cost.

How does it work?

Typically, creators (or artists) will coin their work on the NFT marketplace, which includes platforms like OpenSea, SuperRare, Nifty Gateway, Foundation, etc. Minting is the act of creating NFT, which means creating a smart contract that will be stored on the blockchain. The smart contract contains a lot of important information: it lists the creator of the work and ensures that the creator or other parties receive royalties each time they sell the NFT.

The ability of artists to automatically collect resale value in return is part of NFT's appeal to artists (all platforms make money by taking a small royalty from smart contracts). But the process is not perfect: technical glitches may prevent parties from receiving royalties. And smart contracts don't have the legal force of copyright -- it would take a court case to see how the law looks at smart contracts.

Smart contracts are stored on blockchain, but art itself is mostly not, because storing that much data is too laborious and expensive; Accordingly, most smart contracts include a link to the work they represent. This means that many NFTS are made up of two parts, the smart contract and the asset itself. This can lead to some confusion about where value actually lies. However, there are some works that are not only stored on the chain, but also created using blockchain technology (more on that below).

While artists are constantly encouraged by their peers to turn their work into NFT for big money, there are obstacles. Perhaps most daunting, casting NFT is not free, its cost increases with congestion on the Ethereum network, and more computing effort is required to get the job done. The financial cost of this necessary calculation is the "Gas charge ", which is constantly fluctuating. Currently, it costs about $70 to cast an NFT on Ethereum.

What are some of the problems with NFT?

While NFTs have had a positive impact on many artists, there is not enough data to say whether NFTs benefit many people, or just a few. Detractors call NFTs a Ponzi scheme. The only comprehensive study of NFTs published to date collected prices from 2017 to April 2021 and reported that $15 was the average selling price for 75% of NFTs, with only 1% reaching prices above $1,500. However, this figure should be treated with caution. It is less objective because most of its data points are from the time before NFTs was adopted at its current scale.

Preventing theft is a huge challenge: artists who are reluctant to create NFT often see their work appropriated by faceless people, and only a few NFT markets verify the creator of the work before allowing sales. Artists who complained about the problem online were told to create NFT for their work to stop thefts, an imperfect solution that left artists feeling they were being forced to create NFT. In addition, many artists refuse to create NFTs on ethical grounds.

One reason some artists refused to make NFT was that they didn't want to profit from Ethereum's polluting infrastructure. Basically, cryptocurrencies like Ethereum consume a lot of electricity to operate. According to Forbes, a single transaction on Ethereum currently consumes as much power as a house for a working week. While there are alternative cryptocurrencies, such as Tezos, that have a much smaller impact on the environment, they have yet to be widely adopted (the NFT platform built on Tezos was recently disbanded). Some NFT platforms purchase carbon offsets to mitigate their impact, but the actual efficacy of carbon offsets is debatable. Most of the NFT community is already downplaying the environmental impact because Ethereum 2.0 is coming and will take advantage of a much less polluting infrastructure. It is said to arrive in early 2022, although its deployment has been "imminent" for years.

Besides crypto art, what other application scenarios are there for NFT?

The game is NFT

Many games have items that can be bought or sold on their interfaces for real money. For example, Runescape, an MMORPG with in-game gold, costs about $10 for 100 million gold. CS:GO has a sniper skin called Dragon Lore that costs $61,000. The common denominator is that these objects are controlled by centralized gaming servers and don't have access to the same liquidity that exists on the blockchain.

The new game mode touted by crypto enthusiasts is play-to-earn. Players play to earn NFT items, which can be sold at a higher price in the market. These items can often be used for higher performance in the game. One of the most prominent examples of this model is Axie Infinity, where players get potions (SLPS) for 15 cents each. It's already catching on in the Philippines -- people are quitting their jobs to play full time, and businesses now accept SLP as currency.

Clothing NFT

NFT has even entered the clothing space -- Uniswap socks, for example, are NFT on the Ethereum blockchain and can be traded just like regular NFT, except they can also be exchanged for a real pair. Because these NFTS are associated with callable objects, they trade at more reasonable prices -- $100,000 for a pair of Uniswap socks or $16,000 for Mango Markets' cap.

These NFTS provide the advantage of maintaining the original state of the product. With a collectible pair of Jordan sneakers that may or may not have been worn, owners of this NFT can swap unused socks because they know what they see is what they get. Cryptocurrency exchange FTX is also involved in convertible apparel, offering products such as convertible sweatpants and clothes.

Real estate NFT

In addition to virtual real estate, physical real estate opportunities are emerging through NFT and encouraging a new realm of property ownership -- property ownership without trust. In traditional real estate, property transfer is labor-intensive and requires property rights management. Linking NFT to physical properties can be used directly and with simple collateral, an idea already being explored by European startup Propy. Propy provides a trading platform through which each NFT can access the paperwork for the transfer of ownership. The first NFT auction hosted by Propy sold an apartment for 36 ETH, $93,000 at the time of sale.

There are also some application scenarios of NFT in the metasexes that are not listed in detail.

Does NFTs constitute an art movement? A medium? A genre?

Digital art, new media art, software and blockchain art all represent genres that utilize different specific digital media. Works created through any digital medium, even traditional media, can become NFT. However, there are cases where artists use blockchains and smart contracts to create art itself, and only in those cases does NFT represent a medium. It's worth noting that only in these cases can the rift between the smart contract and the artwork be bridged because they are one.

Whatever the technology versus media issues, it's also clear that the NFT marketplace has elevated certain types of aesthetics and processes. Over the past year, the value of art in the NFT community has changed, expanded, contracted, and evolved again, as collectors, mostly from outside the art world, develop their tastes as the market changes. Collectors are not just building private collections for their own enjoyment. Most collectors are more akin to stock traders, betting on the appreciation of specific collectibles, thus making them perfect targets for hype or as stable stores of value for their cryptocurrencies.

While we've been talking about NFT through the lens of art, most of the content that's been cast is categorized as games and collectibles, although there's a lot of NFT where the line between collectibles and art is blurred -- just like in the contemporary traditional art world. As long as auction houses, collectors and other institutions know that works sold as art rather than collectibles have higher profit margins, it may be difficult to clarify the boundaries between the two categories. But 2021 is likely to see the art world and the public come to their own conclusions as this bewildering novelty market develops at lightning speed.

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