NFTs have taken the world by storm. Every day, digital art and collectibles are being traded for eye-watering sums, and mainstream media is abuzz with this latest application of blockchain technology. But what exactly are NFTs? For all the excitement about them, there seems to be plenty of misunderstandings and misinformation.
For those of us interested in the decentralized web, digital art is the first stepping stone for this emerging tech. In this blog, we'll give an introduction to NFTs and why it's the future applications of the technology that have got us excited the most.
So, what is an NFT?
NFT stands for "Non-fungible Token" (a fancy way of saying 'unique' or 'irreplaceable'). Regular cryptocurrencies, tokens, or banknotes are all fungible – that is, they're not unique, and you can swap them for another 1:1.
Crucially, an NFT can only have one owner at any one time, which is secured by the blockchain. It can't be copied or modified by anyone else or divided up. This makes an NFT, in effect, a digital "proof of ownership." It's like a title to a vehicle or a deed on land – a unique identifier representing ownership of a digital or real-world object. More on this later.
First, though, let's look at how NFTs are created.
An NFT is created through a process called minting, which creates a digital file that can be stored, traded, and recorded on the blockchain. The NFT is then accessed through your wallet, like regular crypto tokens.
The process of creating an NFT goes something like this:
Once you have the image or data you want to "lock" as an NFT, you use a smart contract to publish it, which is secured by the blockchain. Basically, the image is saved as a file on the blockchain, and a random string of characters is generated and used as a unique identifier for that image. This identifier is the “token”. This token is then validated for authenticity, and its data – and which crypto wallet it is linked to – is recorded.
Where things get interesting for NFTs, though, is their utility.
So, what can they do?
Right now, we're seeing applications in the art and collectibles world, but it's important to distinguish between 'digital art' NFTs and broader applications of the technology. Conceptually an NFT can represent anything – in effect, it's the digital version of proof of ownership.
This tokenization of physical assets has few limits. One day, non-fungible tokens stored in crypto wallets could prove ownership for all kinds of valuable assets: not just digital collectibles, in-game skins, or tickets – but cars, homes, qualifications, warranties, and even legal documents.
Where we are now…
We're already seeing some innovative uses of this technology. One emerging use case that has real-world implications today is royalties. For example, musicians can create NFTs from audio files of their music, and receive royalties every time the NFT music file is accessed and streamed – all automated on the blockchain.
The most notable example is Audius. Much more than Spotify on the blockchain, Audius is a community-owned and run decentralized streaming platform. Its goal is to connect artists directly with their fans, giving musicians control of their music. The platform has its own token, AUDIO, which aims to incentivize the nodes that host the music, the artists who create it, and fans who stream it. All earnings move in real-time – supporting the artists and the platform in the process.
Another innovator in this space is EulerBeats. Their goal is to provide a similar approach to royalties for music samples. Every NFT sample on their platform is provably unique, hard-coded with an 8% royalty for using it, and trackable on the blockchain. It's a precise solution to an age-old problem. Over the years, there have been high-profile legal cases involving track sampling; EulerBeats aims to solve this.
So whether it's the distribution of music, its creation, or (re)empowering artists, NFTs offer a way of changing the fabric of the entire music industry. To understand why this is so revolutionary, it's important to remember how this industry operates. Right now, most musicians work with major labels, which takes the vast majority of their profits. Not only this, but labels limit the rise of new music, and even the biggest acts have had some high-profile struggles. All the while, most artists make very little through streaming services, such as Spotify.
Platforms like Audius and EulerBeats are quietly flipping the industry on its head, giving the lion's share of royalties directly to artists rather than the labels – and all in real-time too. And this is just one use case within one industry.
When we start thinking about NFTs as a technology that enables digital proof of ownership, we can imagine applications far beyond music or art. Indeed, there are potential applications of the technology for nearly every industry – and this is where their real value lies. And it's why we believe they're so much more than beautiful JPEGs or humorous apes.
Here at D-Web, we're excited to see where the whole industry takes this technology next.Join us on the journey at D-Web Technologies.