Over the past few years, digital artwork has explored the possibility of using NFT (Non Fungible Token), a new digital medium for asset transactions.
In the future, a large number of item transactions can be carried out in the form of NFT. In addition, NFTs can digitize asset ownership, making it easier to realize value more fully.
The emergence of NFT represents the urgent need for traders to switch from paper-based contracts to digital contract-based transactions.
Note: If you want to understand the ins and outs of web 3.0, you can read From web 1.0 to web 3.0.
Digital Art
Digital artwork refers to a set of data with certain artistic value generated by computer technology. Similar to traditional physically created artworks, digital artworks are considered unique and collectible. Since the transactions of digital art are mostly carried out through cryptocurrencies, it is also called CryptoArt.
Back in 1993, Hal Finney (also an early Bitcoin expert) discussed the idea of a "crypto trading card" on the crypto forum Cypherpunks, possibly the earliest discussion of cryptographic artwork and NFTs.
Digital artwork mainly includes the following characteristics:
- Based on the blockchain platform, once the generation rules are determined, artworks cannot be issued or modified, nor can they be counterfeited;
- More use of cryptocurrency transactions, all records are publicly visible and can be effectively traced;
- After the user purchases, the ownership is recorded on the distributed ledger, which cannot be tampered with or faked;
- Art transactions are completed directly and immediately, and there is no traditional third party;
- Digital artwork itself is not scarce, and even easily copied, but its ownership is unique and recognized by the market.
In 2014, Robby Dermody, Adam Krellenstein, Ouziel Slama and others launched the Counterparty trading platform based on the Bitcoin network. The platform provides peer-to-peer financial transactions through the Metadata Token Protocol, supports the creation of tokens, decentralized asset transactions, and more. In September 2016, the "Rare Pepe" project was launched, becoming an early digital artwork.
On June 23, 2017, Larva Labs launched the CryptoPunks project. The project created 10,000 punk avatars, each as a unique 24x24 8-bit pixmap. Initially, the project was released for free on the Ethereum network, hoping to honor the spirit of punk. Later, with the publicity and participation of enthusiasts, the project attracted the attention of a large number of users and even investment institutions. It is still very active to this day, and the single price is often tens of thousands of dollars. In June 2021, Avatar No. 7523 sold for $11.8 million. CryptoPunks have unique cultural interest as collectibles and are considered to be the beginning of the later trend of encrypted digital art. Since then, Larva Labs has also developed Autoglyphs and Meebits projects, which have also attracted market attention.
On November 28, 2017, the Axiom Zen team (which later incubated Dapper Labs) launched the CryptoKitties game based on Ethereum trading. Each player can buy a digital cat with ether, breed offspring, and sell it. All records are publicly visible on the Ethereum network. Through this game, players can learn to master the basic usage of ether. The game was once very popular. The price of a single digital cat once exceeded 100,000 US dollars, and related transactions accounted for nearly 20% of the transaction traffic of the Ethereum network, causing transaction delays and blockages. The success of the game has also inspired many imitators. The ERC-721 standard that the project follows is widely adopted.
In April 2021, Yuga Labs launched the Bored Ape Yacht Club project on the Ethereum network, which includes 10,000 different ape portraits, generated by computers. Among them, the portrait numbered 8817 was auctioned for a high price of 3.4 million US dollars.
NFT
Although many NFTs are digital artworks at present, the connotation of NFTs is actually more extensive. Anything that can be circulated in the digital world can be considered an NFT. Including paintings, photography, music, books, games, etc.
NFT literally means non-fungible token. Traditional encrypted digital currency is homogeneous (Fungible Token), there is no difference between any two coins, can be replaced with each other, and can often be split into smaller units, such as Bitcoin. NFTs, on the other hand, are unique, cannot be replaced by other NFTs, and often cannot be divided into smaller units. For example, a painting NFT represents the painting itself and cannot be replaced by other NFTs.
At present, NFT products often have the following characteristics:
- not interchangeable;
- cannot be split into smaller units;
- Often only exists.
The non-homogeneous nature of NFT makes it easy to anchor to objects in the physical world, such as real estate, cars, collectibles, etc. The property rights of any real object can be tied to an NFT. Therefore, NFTs are considered to have great potential.
In 2020, with the massive issuance of sovereign currencies around the world, NFTs have begun to be more and more sought after. In 2021, the NFT project has ushered in a big explosion, so 2021 is also called "the first year of NFT" by many people. At present, most NFTs are traded through platforms such as Opensea, Rarible, and Nifty Gateway, and rely on the Ethereum network and IPFS for storage.
The emergence of the NFT idea is very natural, and its earliest prototype can be traced back to the Bitcoin-based ColoredCoin that appeared in 2012. Colored coins have color attributes, and colors can be used to represent different assets. This provides feasibility for real-world assets to be put on the chain.
But the Bitcoin network does not support smart contracts, limiting its expressiveness. The Ethereum network, which was launched in July 2015, strengthened its support for smart contracts, making the emergence of a large number of NFTs a reality. In particular, in September 2017, the ERC-721 specification was officially proposed and became the reference standard for a large number of NFTs based on Ethereum projects. This year, the encrypted cat project was launched, and the concept of non-fungible tokens was officially established. In 2018, the Ethereum community also proposed the ERC-1155 standard that supports batch transactions, which is currently supported by the trading market Rarible.
Sky Mavis developed the game Axie Infinity in 2018, which has since become one of the popular games on the Ethereum network. It supports players to trade virtual pets and land resources through NFT. At the same time, players can obtain points and exchange them by playing games. Some virtual pets cost as much as 300 ether (about $1 million).
In October 2020, Dapper Labs partnered with the NBA to launch the NBA Top Shot game project. It uploads the highlight video clips of a player in the game to the public chain Flow developed by Dapper Labs and makes it as an NFT product. After the NBA Top Shot project was launched, it attracted the participation of a large number of users. The total turnover has exceeded 200 million US dollars, and the NFT price of some products such as player LeBron James's slam dunk video once soared to 400,000 US dollars.
In addition, the British Museum, the Russian Hermitage Museum, etc. have also auctioned NFT products of world famous paintings.
In February 2021, Linkin Park (Linkin Park) band member Mike Shinoda released an NFT music composition on the platform Zora for a whopping $400,000.
In February 2021, digital artist Mike Winkelmann (aka Beeple) created 5,000 digital paintings "Everydays – The First 5000 Days" which took 13 and a half years from May 2007 to create a 316 MB image NFT. , sold at Christie's for a historic price of $69.34 million (42,329 ETH) to cryptocurrency investor Vignesh Sundaresan.
In April 2021, Centrifuge successfully secured a MakerDAO loan using the house as collateral.
In December 2021, the digital artist, codenamed Pak, will include 312,686 digital art collections, "The Merge," sold on digital art auction platform NiftyGateway to 28,983 buyers for a total of $91.8 million. This is also the most expensive NFT work at present.
Advantages of NFT
The use of NFTs for transactions includes the following advantages:
- Instant transaction: After the buyer and the seller reach a transaction from the platform and write it into the blockchain, the ownership of the NFT is transferred, and the transaction record is stored on the distributed ledger, which cannot be tampered with;
- Not easy to fake: Once the NFT product is confirmed, its transaction history will be completely recorded, and it is difficult for others to fake it;
- Improve efficiency: NFT-based transactions are processed automatically through smart contracts, and the processing efficiency is much higher than manual operations;
- Reduce costs: The handling fee of NFT platforms is usually much lower than the intermediary fee for real transactions, and reducing transaction costs can also promote the prosperity of the market.
Problems with NFTs
The rapid development of NFT has also led to the emergence of some problems:
- Auditing issues for NFTs: Before becoming an NFT and being traded, the platform or auditor needs to confirm the actual ownership of the bound items. Once there is a false property right situation, there needs to be a way to roll back, which puts forward new requirements for the current distributed ledger technology;
- The problem of rational return of the market: At present, excellent NFT products are very scarce, resulting in many products being hyped up with inflated prices after they are launched. Excessive prosperity in the early stages of the development of new things often leads to the rapid creation and bursting of bubbles. The trading platform should design a more rational auction mechanism and raise the threshold for participation.
- Interconnection between different platforms: NFTs based on different platforms often adopt different standards, and it is difficult to interconnect with each other, which limits the circulation of NFTs in the larger market.
