What is NFT technology?
Besides cryptocurrencies, non-fungible tokens are the most discussed blockchain-related topic. Slowly but surely, NFTs are becoming a significant part of almost every industry, from art and sports to fashion, gaming, and... memes.
Let’s break down what exactly NFT technology is and what makes it so attractive for so many different industries.
What is a non-fungible token?
In order to understand NFTs, we must forget about the old presumption that everything digital can be copied. The “non-fungible” part means that we’re dealing with pieces of data that can’t be replaced in any way. Their security and irreplaceability are assured by blockchain, which tracks NFTs ownership and any eventual trades or purchases. The easiest way to understand it is to put it in context. Let’s look at some of the most famous examples of NFTs:
NBA Top Shot
Collecting sports memorabilia is as old as sports competition itself. The most popular example is baseball cards, but it’s not that hard to imagine Arrhichion, the most famous pankratiast, selling his fight-worn underwear in some underground auction house. Dapper Labs, the developer of NBA Top Shot, created a truly XXI century version of that hobby. The platform allows basketball fans to collect virtual video moments of their favorite players.
Of course, it’s not like you couldn’t just go to YouTube and watch any of those moments, wherever you want. There’s nothing secret or exclusive about the content. It’s all about the certified ownership of that particular moment in the platform. The record sale on the platform was $210,000, and it was a dunk by LeBron James. There were only 59 such moments released.
According to CoinMarketCap, Axie Infinity is the most valuable NFT platform. It’s a trading game with NFT-based features. The gameplay involves breeding, raising, battling, and trading creatures known as “Axies.” And here’s where NFT technology comes in. Each Axie is a one-of-a-kind, non-fungible token. And it doesn’t end here because, besides creatures, you can even buy in-game property in the form of NFTs.
On a surface level, it looks like the most juvenile, silly type of game, but it’s so much more than that for thousands of people. The Axie Infinity boom created a fascinating case in countries that are troubled by hyperinflation. One of the most widespread examples is the Philippines. Due to the crisis caused by the pandemic and lockdown, people started playing Axie Infinity because, for many, it was the only way to earn money.
Other examples of NFTs include pieces of art, memes, and much more. To be frank, applications of NFT technology can go as far as our imagination is willing to take them.
The short history of NFTs
The first non-fungible token was created in May 2014 at the Seven on Seven conference as a digital representation of a piece of art. The project, however, was just an experimental one-off. The first project that resembles current applications was Etheria, which was demonstrated in October 2015 at the Ethereum blockchain conference. It was an experimental game-like project, which allowed users to buy and trade hexagonal tiles on the map. It went largely unnoticed at first, but due to NFT boom, all tiles were sold this year for a total of $1.4 million.
The first NFT rise in public awareness was in 2017, primarily thanks to CryptoKitties and CryptoPunks. The first platform could be described as a super lightweight version of Axie Infinity. The second one was an art project inspired by different punk-related movements. All of the initial NFTs were created in Ethereum. Nowadays, there are more blockchains suitable and utilized for NFT applications, such as Flow, Tezos, or Cardano.
Token standards and why they exist
There’s a particular reason why most NFT projects are created in Ethereum. In late 2015, Ethereum developer Fabian Vogelsteller presented a technical standard, later established as ERC-20. It’s was a set of guidelines for further implementations of Ethereum-based digital tokens—a set of rules that token must meet to be able to function in the Ethereum blockchain properly. The standard, however, didn’t refer to non-fungible tokens. Its main goal was to assure the security of tokens and smart contracts within Ethereum.
As a response to the inefficiency of the ERC-20 in terms of NFT applications, a team of Ethereum developers created a standard called ERC-721 at the beginning of 2018. The new set of guidelines was explicitly developed for non-fungible tokens. The standard gave birth to CryptoKitties and was a fundament of the NFT boom that we’ve observed in the last 3 years.
Still, in their current form, blockchains are being expanded in a very static way. In the case of Ethereum, a new block is created every 10 seconds. It limits the ability to scale Ethereum-based platforms. This issue, however, is about to drastically change with the set of Eth2 updates, which will revolutionize the most NFT-friendly blockchain.
What is the technological background required to develop new NFT platforms?
Much like any type of blockchain development in general, the actual “blockchain part” is just a fraction of it. Of course, in order to develop NFT-based software, it’s necessary to have blockchain-savvy specialists who can lead the project. For instance, one of the most significant skills is knowing Solidity, which is a programming language used for writing smart contracts. As a little bragging side note, we have to say that one of our team members is a top contributor in the Solidity project (we’re very proud of cameel, one of our lead developers) and we’re continuing our cooperation with Ethereum Foundation as a team.
Having said that, it’s fair to say that most of the blockchain development is just front and back-end work like any other.
On a concept level though, it’s good to know the good ol’ blockchain trillema. There’s scalability, security, decentralization, and you can only pick two of those. Each blockchain can be pretty easily pinpointed on that triangle based on its characteristics and features. The right choice of blockchain for a project is a fundamental step.
You can read more about the topic in the article by our CTO, Krzysztof Fonał - “How to develop blockchain applications?”.
The future of NFTs
For now, it’s safe to say that the future of NFTs is anything but predictable and whoever makes the best guess, can earn a lot of money. There are still many unanswered questions of legal and even environmental nature. For instance, this year, bitcoin mining was banned in several regions of China, including Sichuan, which was the country’s epicenter of the mining industry. The ban forced companies to move their business overseas. It’s difficult to say how government regulations will shape the evolution of NFTs.
There’s also the environmental question based on the allegation that crypto mining requires very high energy consumption, but this problem is rapidly changing for the better. Even as of now, a significant portion of the energy used for proof-of-work mining is gathered from renewable energy sources. More and more blockchain startups are addressing the issue, like Genesis Mining in Iceland, which uses only renewable energy. The biggest revolution, however, might be the transition from proof-of-work systems to proof-of-stake, which may lower energy consumption by even 99,5%. But let’s save that topic for another day…
One thing is certain; in some way, shape, or form, the NFT industry will continue to grow. As a blockchain-oriented software house, we’re excited about upcoming changes. There is still enormous potential for non-fungible token platforms and applications. If you have an idea for the next big thing, we’ll be happy to help you make it real.
Let us know about your NFT project and we will help you shape it into a functional and profitable platform.