Everything You Need to Know to Jump into the World of NFTs

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By: layerthree

Jump into this crazy world of NFTs

Picture the first ever tweet in all of Twitter, or what about a Logan Paul Pokemon card, or maybe an audio-only sex tape? These are all real items that have been auctioned off by, respectively, Jack Dorsey, Logan Paul (obviously), and Azealia Banks, as they have made the jump into this crazy world of NFTs.

Love them or hate them, NFTs are now at least a small part of the fabric of our society and likely not going anywhere anytime soon. There are some real value-driven use-cases for them, as well, but let’s start with the basics with learning what an NFT actually is. Plus, it really is fun!

What is an NFT in a technical sense

Definition: Non-fungible tokens, or NFTs, are unique assets on a blockchain that can be cryptographically distinguished between one another.

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As An Example: Let’s compare an NFT to fiat currency (e.g.: USD). If you let someone borrow $20 and they come back the next day to repay, you don’t check the serial number to verify it is the exact same $20. You just care that it is a $20. That’s because fiat currencies (and cryptocurrencies, for that matter) are fungible.

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Now, let’s say you owned an original Picasso painting, and you let someone borrow it (…although, that may be on you). When they come back the next day and return an extremely high-quality photocopy of the painting, you’re probably not going to let that slip by. The quality of the replica is irrelevant, there is only one source. This is because an original Picasso is non-fungible.

Broken into parts

Non-fungible: Something that is non-fungible is unique and cannot be exchanged for anything else.

Token: You hopefully now understand the difference between fungible and non-fungible, but we haven’t talked much about the second half of the acronym – the token. The token aspect comes from “tokenization”, which is the replacement of sensitive data (the asset) with non-sensitive data (the token).

At it’s simplest, a token is just the pointer to prove an asset’s owner is the sole owner.

How NFTs can be used

There has been quite a lot of recent chatter about NFTs, between everyone from celebrities to the mainstream media. Some of the conversation has been positive but much has been negative, especially from the latter. We’ll be the first to admit that there are illegitimate projects and flat-out scams in the NFT world. However, there are also very real use-cases. Let’s try to give some insight into both. First, you’ll need a wallet.

NFTs: The Practical

Artwork

By far, the most widely-known use of NFTs is the artwork. It is a seemingly perfect use, since the legitimacy can be proven with one look at the blockchain.

An obvious counter-argument is that a copied digital piece is literally as good as the original, and we get that. But, there has to be some value in being the official owner, where it is up to you and only you to decide it’s fate.

Real Estate

An case that would have much more dramatic impact is with the creation of an NFT as a physical asset, especially in an industry such as real estate.

With real estate being the vast percentage of most families’ net worth, safety and security of the deed is obviously of utmost importance. There is currently a tremendous amount of paperwork to buy property or open an equity line, and that process could be cut down to minutes with an NFT and a smart contract.

Medical Records

Where could worldwide access to personal data come in most handy? Reading the heading of this section might be a bit of a spoiler, but yes, your health and medical records.

Many attempts have been made to unify a person’s medical records into one comprehensive file, but due to the fragmented nature of the U.S. healthcare system, between ownership, updating, and maintenance, nobody has been able to solve the problem. This seems like a perfect application for an NFT, giving power back to the patient and even being able to function worldwide!

Gaming

There is much to complain about when discussing NFTs and gaming, although much of that can be chalked up to major publishers from the existing industry trying to make a quick cash grab aboard the hype train.

The real excitement is in newly developed companies, developers, and publishers, where games are being designed from the ground up to incorporate NFTs into their worlds. One very plausible example would be creating, building, and growing a character in one game, then since you own the damn thing, simply accessing it another game to use!

NFTs: The Less Than Ideal

Fake Stores and Drops

There will always be bad actors in a new, relatively unknown market, trying to make a quick buck. There have been numerous examples of domains popping up that look exactly like their legitimate, trusted counterparts (OpenSea, Rarible, etc.), where people will go to buy, then ultimately lose, their cryptocurrency or NFT asset.

Insider Trading

As this is such a new industry, governments haven’t quite yet gotten their grasp on what is what and what is not. With this uncertainty, there have been instances of people selling large quantities of assets just days before a company’s acquisition (or vice versa).

Even OpenSea, one of the most reputable sites even outside of the crypto/NFT space, had an issue last year where an employee purchased an NFT just days before it was set to be featured on the OpenSea home page. This was obviously done with the intent for the price to skyrocket, then likely sell for a hefty profit.

Unforced Errors

When keeping money in your traditional bank account, 401(k), etc., there are tried-and-true methods, tested standards, and government-guaranteed funds that give you an enormous amount of insurance should something go awry. This is not at all the case in the NFT space.

Since many people are just jumping into this scene for this first time, there are bound to be mistakes. The thing is here, when you fat-finger a wrong recipient address, that asset you just sent is going there no matter what. If someone owns the wallet, lucky them! If nobody does, which is far more likely, the asset just disappears forever into the ether (pun intended!).

Whales and Gas Wars

When using Ethereum, there is always an option to “priority tip” a validator to incentivize the validator to prioritize one transaction over another. You should already see where this is going…

During an NFT drop (aka: release), a whole collection of thousands of NFTs could last minutes, if not seconds, if the hype is great enough from a popular artist. This scenario is ripe for an investor with plenty of extra cash (or crypto, in this case) to “outbid” any regular user and win one or some of the NFTs in the drop. Minutes after selling out, these same NFTs can be found on the open market for dozens of times the price that was paid for them, and the regular guy is left high and dry.

Final Thoughts on NFTs

Anyway, you’ve now read all about what an NFT is, what they can be used for, and some positives and negatives of the future of the NFT space. We hope it’s been somewhat enlightening and helped in some way as you navigate your way through the blockchain!

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