A History of NFTs and What Makes Them Work

NFT stands for “non-fungible token.” Each token created is unique and cannot be traded for another non-fungible token. These are different from fungible tokens because fungible tokens are interchangeable. All NFTs represent unique concepts, kind of like snowflakes as no two snowflakes are alike. They can typify a piece of digital artwork, digital collectibles, unique game pieces, or any assets earned or purchased for the digital space. NFTs were designed to show ownership of a specific idea or asset but they also allow the creators to monetize their individual concepts. As the crypto space progresses, the use case for NFTs increases. You may have been hearing a lot of hype about NFTs but how exactly do they function and where did they come from? NFTs have quickly evolved in the crypto space and have made it easier for users to create using the ERC-721 standard. Whereas CryptoPunks and CryptoKitties started as a way to test the theory behind ownership of digital assets, the space has realized the immense value behind this technology. Now, artists can share their work without the fear of being copied and not being credited for their work. Platforms like Rarible (https://rarible.com) and SuperRare (https://superrare.co) are at the forefront of digital art sales and things have only just begun. Moving forward, new platforms will be designed to show art, create or collaborate on music, offer digital goods and services, and much more. The possibilities are nearly endless and what can be said for certain is that the online world now has powerful ways to negotiate and finalize contracts or sales without the need for third-party interceptions. Moving forward, the space can expect to see more individualized and complex digital art and more in-game assets that change the entire gaming space from scenic concepts to objects within games. The gaming industry along with the art industry has entered a new age and NFTs are the reason we can all confidently move forward with this new type of work.

When we discuss NFTs, the term ERC-721 comes up and it’s important to differentiate between the ERC-20 code and the ERC-721 code. Simply put, the ERC-20 protocol represents a fungible token (not unique and can be interchangeable). The ERC-721 protocol introduces the idea of non-fungibility (unique tokens). Both command codes operate on the Ethereum blockchain. The ERC-721 standard outlines a few regulations for non-fungible tokens that are written into their smart contracts. The rules in the smart contracts delineate ownership, outline the creation process, and inform how the tokens are going to be distributed. The ERC-721 standard is what gave rise to CryptoPunks, a set of 10,000 uniquely designed characters that can be collected. These were introduced in 2017. After that came CryptoKitties, which had the same collectible framework as CryptoPunks but in a gaming format. Instead of just being collectibles like Cryptopunks, Cryptokitties allowed people to collect, trade, and even breed their kittens. Although the Ethereum blockchain was the first to really take advantage of NFT technology, a few other cryptocurrencies like TRX now have their own standards for NFTs.

Although NFTs became popular with Cryptopunks and Cryptokitties, the idea for NFTs actually began in 2012 with a project called Colored Coins. This project was built on the Bitcoin blockchain and allowed investors to assign value to tangible assets. Essentially, Colored Coins created a way to distribute and manage coupons or vouchers. These coupons/vouchers could then be redeemed for real-world goods and services. The flexibility in the metadata that could be added to colored coins is what helped to make the idea a success but there were still some fundamental problems with using these kinds of commands on the Bitcoin blockchain. The utility in services like these gave rise to what we now know as NFTs.

NFTs have quickly evolved in the crypto space and have made it easier for users to create using the ERC-721 standard. Whereas CryptoPunks and CryptoKitties started as a way to test the theory behind ownership of digital assets, the space has realized the immense value behind this technology. Now, artists can share their work without the fear of being copied and not being credited for their work. Platforms like Rarible (https://rarible.com) and SuperRare (https://superrare.co) are at the forefront of digital art sales and things have only just begun. Moving forward, new platforms will be designed to show art, create or collaborate on music, offer digital goods and services, and much more. The possibilities are nearly endless and what can be said for certain is that the online world now has powerful ways to negotiate and finalize contracts or sales without the need for third-party interceptions. Moving forward, the space can expect to see more individualized and complex digital art and more in-game assets that change the entire gaming space from scenic concepts to objects within games. The gaming industry along with the art industry has entered a new age and NFTs are the reason we can all confidently move forward with this new type of work.

This post was first published for Cryptowriter in association with Voice.