NFTs for Dummies – The ultimate NFT guide by Iconium Blockchain Ventures
It has been a while since “NFT” has become the official buzzword within the crypto space and beyond. And although talking about NFTs can be fun and exciting, sometimes this world can get a little tricky. That’s why we @Iconium decided to make a pocket guide on this topic. A simple (yet effective) overview aimed at clarifying once and for all the NFT fundamentals, hence the name “NFTs for Dummies”.
So… Let’s get started!
What is an NFT?
As some of you will know, “NFT” stands for Non-Fungible Token.
Unlike traditional crypto – whose units are meant to be interchangeable (being indeed “fungible”) – NFTs are blockchain-based digital items whose units are designed to be unique (i.e., “non-fungible”). In a nutshell, trade one for another Bitcoin and you’ll have exactly the same thing. Trade one for another NFT and you’ll have something completely different.
NFTs can store data on blockchains and that data can be associated with media such as images, videos, audio, or in some cases even physical objects. Although being typically associated with different kinds of media, it is important to note that most of the time NFT owners only have rights as placeholders on the blockchain, while – unless specific cases – no rights of ownership or copyright can be claimed over the visual media associated with the NFT itself.
NFTs – Exploring the structure
Any NFT is a Smart Contract which comes with a specific set of information, collected in what is being called “metadata”.
So far so good? Let’s deep dive.
ERC-721 Smart Contract
On the Ethereum blockchain, ERC-721 is the NFT standard par excellence. Introduced by Dapper Labs (the company behind CryptoKitties) in 2017, this set of rules makes each Smart Contract token unique, with its uniqueness feature possibly stemming from age, rarity, or other visual characteristics associated with a specific token. All NFTs are marked by a uint256 variable called “Token ID” and for any ERC-721 Contract, the pair contract address – uint256 Token ID must be globally unique.
ERC-1155 Smart Contract
Another standard on the Ethereum blockchain is the ERC-1155, aka Multi Token Standard, which was introduced by the team behind the Enjin Project in 2019. Major features of this standard include:
- support of both fungible and non-fungible tokens on the same address and contract;
- allow for batch transfers (transfers of multiple assets on a single smart contract which enable lower gas fees);
- support of the so-called SFT, which stands for Semi-fungible Tokens (tokens which trade as fungible tokens, but that once redeemed convert into NFTs).
ERC-721 vs ERC-1155
The main differences are summarized in the table below:
Whether developed according to the ERC721 or ERC1155 standard, any NFT is characterized by its metadata. As the name suggests, metadata is nothing more than data about data…
In other words, metadata is the additional data that is used to structure, identify, or describe a core set of data. To keep it simple, the metadata describes the multimedia content of which the token is container and certifier.
While the smart contract is stored on the blockchain, the NFT metadata is stored off-chain, as a workaround to avoid hosting large files on-chain.
So, who runs the show hosting NFT metadata online? Metadata is generally saved in the InterPlanetary File System (IPFS): a decentralized file storage and referencing system which the NFTs point to.
Metadata is specified in a standardized JSON (Java Script Object Notation) format, while in the Ethereum contract the information is stored as a URI (Universal Resource Identifier) string which points to a location where the user can find the token’s JSON description. All of this is possible thanks to the so-called “pinning” services. One of the most used is Pinata.
NFTs – Exploring the applications
When talking about NFTs, applications and use cases are nearly endless.
Don’t worry, we did the dirty work for you and collected the main types of NFTs. Have a look at this table:
Ok, we’re done with theory. Let’s see some practical cases of these categories.
NFTs – Practical cases
Algorithmic art, aka Generative Art, is a type of artwork wholly or partially produced by an autonomous system that can independently determine its features.
- Unpredictable outcome: the attributes of an artwork are randomly generated in the minting process;
- Fluidity: the algorithm used to generate artworks can be tweaked and improved.
- Ease and speed: to generate a new art piece, you only need one click;
- Ready-to-market: this kind of art can be instantly created where a global community is ready to make purchases through NFT marketplaces.
One of the leading NFT business projects influencing the growth of algorithmic art is Art Blocks: an Ethereum dApp where it is possible to create, choose and purchase generative art pieces. In August, the volume on Art Blocks was annualized at 20% of the whole global art market… Not bad, right?
And of course if we talk about generative art we cannot fail to mention the Bored Ape Yacht Club. Made up of 10,000 unique profile pics generated from a set of 170 distinct features, this collection is currently one of the most expensive in the NFT world.
Distinctive and with a limited amount of space needed, Pixel Art is perfect for crowded feeds such as Twitter. This explains in very short the reasons behind its huge success. Just think that a search for the word “pixel” on OpenSea returns 7.5 millions of results!
Have you ever heard of Damien Hist? With his first NFT project called “The Currency” – consisting of 10,000 NFTs corresponding to 10,000 unique works on paper created back in 2016 – this artist generated $25 million in two months.
Of course Damien could not have been the only one and indeed many famous artists have followed this lead. This kind of artwork can be found in specific marketplaces such as SuperRare, KnownOrigin and Nifty Gateway.
Collectibles are becoming more and more popular, representing an interesting way for famous brands to explore NFTs and use them to increase engagement with their customers/community. Amongst the many examples, we find brands like Mercedes and Adidas.
We know Metaverse is a massive concept and this is not the right place to go into this topic, so we limit to say that the combination of NFTs and Metaverse originates a wide range of opportunities.
In the new digital worlds where almost anything is possible (simplified concept of Metaverse), NFTs bring the concepts of ownership and uniqueness. Currently, the most popular use cases are lands, avatars and items. Among the many virtual reality worlds, The Sandbox and Decentraland are 2 of the most popular.
Gaming has been one of the most immediate NFT use cases, as NFTs unlock the possibility for players to monetize gaming assets by owning them and then exchanging them on the secondary market.
Since many gaming items are semi-fungible tokens, the most used standard in gaming is the ERC-1155. Game categories range from Role Play Gaming (RPG) to Massively Multiplayer Online Role-Playing Games (MMORPG) and Trading Card Games (TCG).
TokenTrove represents a great success story of TCG:
Did you know that NFTs can also be used as domain names? In this way, a domain name (like https://www.iconium.it/, just to name one at random) becomes much more than just a web address.
Being built on blockchains, NFT domains turn the complex hexadecimal wallet addresses into easy-to-remember names and also enable censorship-resistant websites. These kinds of domains give users complete ownership of their stored data and at the same time allow anyone to see the data stored there, creating a level of ultimate openness, transparency and enhanced security. Examples of this application are Unstoppable Domains and ENS Domains.
Maybe some of you have already heard about OpenSea. For those who don’t, this is currently the largest NFT marketplace in the world. But although being a colossus worth $13.3 billions, OpenSea is not the only NFT marketplace in the scene.
Just recently, another marketplace dropped what has been defined a “vampire attack” on OpenSea. We’re talking about LooksRare. In the crypto space, by “vampire attack” we mean a situation in which a platform entices users and liquidity from a competitor by offering higher incentives for use. In this case, the decentralized marketplace LooksRare – by simply rewarding OpenSea users who tried out its platform with its $LOOKS token – leveraged the criticism that the NFT community had been raising against OpenSea for a long time: being a centralized company which delivers under-qualified products and without a token that would allow the community to get a share of the generated revenues. You can find more insights on this case in our Medium Article.
Having said all the above, here’s a comparison table of the main NFT marketplaces:
As the table shows, the problems that Ethereum is experiencing in terms of network congestion and high fees led many other chains to become more and more used also for NFTs.
These chains can be split into two categories:
- Not NFT Specific Chain, such as Polygon, Avalanche, Arbitrum and Solana;
- NFT Specific Chain, such as Flow, ImmutableX, Efinity.
It’s time to say goodbye
If you’ve made it this far… Well, congratulations, you are no longer a dummy!!!