What are NFTs?
NFTs are kind of a big deal. You may have heard some people rubbish them, it’s a classic attack on the Web3 and blockchain space. But what they really are and what they promise is much deeper than you might imagine.
What is an NFT?
“NFT” stands for a non-fungible token. It’s a digital token that represents something. The non-fungible in its name simply means it is unique.
NFTs are stored on a blockchain, they exist as a digital token that is stored as part of the blockchain’s history.
What does that actually mean?
When an NFT is created on the blockchain it is added by all the blockchain computers and assigned to a wallet on that blockchain. It is a little blob of data and the blockchain takes care of storing it and recording which wallet owns it.
The blob of data in the NFT can be anything, whatever its creator wants to store inside it. (OK not literally anything, there’s actually a size limit on the data that can be stored inside it, but it’s big enough to hold a block of data and prove ownership of anything at all).
The fact it is stored in a blockchain wallet means it works in the same way as a cryptocurrency on the blockchain. In just the same way as you can transfer your cryptocurrency coins (e.g. your Cardano ADA coins) from your wallet to another, for instance when you buy something from someone else, you can also transfer an NFT from your wallet to someone else’s wallet, for instance, if you sell it to someone else.
How can I view an NFT?
Anyone can view your NFT, the blob of data is stored in the blockchain history when it is created and anyone can see it.
But you as the owner of an NFT are the only one who controls it, who can prove you own it or can transfer it to someone else’s wallet.
When an NFT is transferred, the original blob of data, the NFT itself, doesn’t change. The blockchain just records that the NFT has been transferred and that it is now owned by the new wallet.
What's the point of NFTs?
NFTs are taking a lot of stick currently from Web3 haters, but they represent something fundamentally brilliant that a blockchain is a perfect platform for.
Remember when we said above that the data stored in a NFT can be anything you want? Well thats whats so useful about them.
Right now the most popular use of NFTs is to prove you own an image you have purchased the rights to. Anyone can view the image, but the data inside your NFT typically contains a cryptographic signature that proves it is the NFT which has the ownership rights for that picture.
How does it prove it? Well the creator of the image has chosen to sell the rights to it, in the form of a NFT. In doing so they are assigning the rights for it to whoever purchases the NFT. When they create the NFT itself they store that assignment as part of the data in the NFT, for instance by including a digital signature of a hash of that image file (a hash is a highly secure unique cryptographic key which can only be created by “hashing” that particular image file).
People who think NFTs are all about dumb images are missing the point about them completely. Images are just a really obvious use case that has happened to capture lots of people’s interest and attention.
The real power of NFTs is that they exist on a blockchain, with all the security and tools that brings, and that the blob of data inside them can store anything you want.
Anything, so what else would that be? Well that’s up to yours and everyone else’s imagination, but here are a few examples:
Rights to use a file, any type of file – think a music track, a video, a photo of something specific, a design, a book, your paper on the secret to life the universe and everything
Fan – you are a member of an artists fan club that entitles you to special privileges
Proof you attended an event
Achievements – showing you completed a training course
Qualifications – confirming you attended a certain university and achieved a specific qualification
Physical ownership – proof you own an item of physical property, a piece of land, the deeds to a house
Digital ownership – proof you own an item of digital property, e.g. special items in a game, a piece of land in a metaverse
Proof of identity
Tickets and passes
We could go on, but you get the point hopefully, it can literally be anything at all.
Why is that useful?
NFTs are stored on a blockchain, on the Cardano blockchain for instance. If you’ve been through the sections on our main home page you’ll hopefully have become pretty clued up about why good blockchains like Cardano are so useful.
That NFT you’ve created, be it for a photo of your cat or for the title deeds to a $10,000,000 property, exists on the blockchain with all of the security and functionality the blockchain provides. You can prove, without any doubt, that you are the only owner of that NFT. You can transfer the NFT to someone else, sell it or even make it part of a smart contract that runs on the blockchain (more on that below).
Anyone can view the blockchain and the NFT, any software, any website. A blockchain is an open system by design, NFTs are therefore open to everyone and anything, allowing NFTs to be viewed and verified by all sorts of different websites and services. So your NFT can be shared between different social media sites, between different companies, between different digital services, between different metaverses, between anything that uses computers.
The possibilities are literally unlimited and all decentralized, so none of this is at the mercy of some gatekeeping company or corporation.
If you’d like to delve deeper, @punk6529 did a particularly good thread on the need for decentralized NFTs, which you can read over on Twitter.
NFTs and Smart Contracts
One of Cardano’s great features for NFTs is that you don’t need to create a smart contract on the blockchain to use them (see our why are blockchains useful page to learn what a smart contract is). That makes them really easy for people to create and use.
But you can use NFTs with smart contracts, if you want to. The ability to make them movable from one wallet to another through the use of a smart contract means you can do all sorts of clever things with them. A great example is an artist who creates a work of art and sells it as a NFT. Instead of just selling the NFT, that artist can instead sell it as a NFT that comes with a smart contract, in which they can specify, for example, that if the NFT is ever sold in the future the artist must be paid a royalty as part of the transaction on the blockchain that sells it. That could be a fixed fee, say 100 ADA for example, or it could be a percentage of the sale price. Now, every time that piece of art, that NFT, gets traded from one person to the other on the resale market, the original creator gets rewarded too! That seems kind of a fair thing. It’s rather empowering for creators wouldn’t you say?
There’s no reliance on some 3rd party remembering to do it, still being in business to do it, taking a cut to do it. The blockchain literally won’t allow the NFT to be moved from an owner’s wallet to someone else’s wallet without that fee the creator built into the smart contract being paid as part of the transaction.
That’s just one example. You can program a smart contract to do whatever you want. So what else can you make an NFT and smart contract do? Well, pretty much anything…
How big are NFTs on Cardano?
The Cardano blockchain has a thriving NFT community. Compared to other blockchains it is perfectly suited to handling NFTs due to its core design. On Cardano, an NFT exists just like the native cryptocurrency ADA exists and inherits all of the same functionality. You don’t need to get into writing smart contracts to create them or use them. That might seem obvious, but on blockchains such as Ethereum, it’s a much more complex affair.
Should I buy NFTs as an investment?
The image as an NFT market has become very valuable. Image NFTs capture a fun desire to own and collect pictures you think are cool. They are easy to understand and easy to show off to your friends.
Will they all be valuable in 10 years’ time? No, of course not.
Will any of them remain valuable? Yes of course some will. The desire to create, own and trade NFTs isn’t going anywhere.
If you spend a bit of time browsing through image NFT websites you’re going to come across one you really like eventually. It’s art, everyone likes what they like and there are all sorts of artists creating them today. Whether it’s a good investment is down to your own instincts and knowledge. If it’s affordable to buy then why not, it’s cool to own things you like. You spend money on cool clothes to go out in, nice looking things for where you live, why wouldn’t you buy an NFT you think would be cool to show off that you own if you can afford it?
If it’s expensive, well it’s your call if you think its value will ultimately go up or down. Same as any investment choice.
NFTs don’t wear out
One of the really neat things about NFTs for digital items, compared to physical property, is that they don’t degrade. Of course not, they’re digital. So even if you sell an NFT for only the same amount of money as you originally purchased it for, you’ve gotten to use it for all of that time as your own. Its value won’t have diminished because of any wear and tear, as would happen for a physical thing you bought from a shop. A Louis Vuitton bag looses maybe half its value the moment you take it out of its wrapper. A NFT doesn’t.
When you start looking beyond just image-based NFTs, this aspect gets even cooler. Consider buying an NFT that assigns you ownership of a piece of land in a metaverse, for instance. All the time you own that NFT you get to do whatever you want with that plot of virtual land. When you come to sell it, if that metaverse is still popular then you’ll likely get all your money back, maybe even a tidy profit, all the while having got to use it and everything that metaverse offered whilst you owned it.
NFTs and the metaverse
Right now the NFT you’ve purchased has somewhat limited ways for you to proudly display that you own it. You can set it as your profile image in your social media accounts, post it to places, all in the knowledge that you and you alone own the rights to that image. It’s cool, it’s enough for the NFT space to have exploded. But it’s also kinda limited.
That’s all going to change as NFTs and Web3 evolve. Already some social media providers are getting in on the act by letting you set your account avatar to be an image NFT and then interacting with the blockchain to confirm for all to see that you do indeed own that image as an NFT. That’s cool. What else?
The metaverse is coming, it’s going to be rather good. Exactly what it’ll be and how popular it will be remains to be seen, but its promise is tantalising.
Image if you will what it might be like. You’re wandering around the metaverse, you go into someone’s virtual bar say, on the wall hangs a picture, as you look at it the metaverse software you’re using tells you that it is indeed that $500,000 Bored Ape Yacht Club NFT you’ve always loved. This guy owns it! As you look around further, you see another NFT hanging there, yep it’s an NFT that confirms this person was one of the only 300 people who went to the first gig of the [insert your favourite band name here]. You get the point – popular NFTs are cool because they convey ownership of something that other people admire. The software we all interact with day to day, be it a social media network, popular websites or the coming metaverse, is able to digitally read NFTs and not just show them off, but also show to everyone you are the owner of them.
Those silly image NFTs might just get a whole lot cooler wouldn’t you say?
Oh, and while we’re here let’s not forget, that image NFT you purchased, that fan club NFT you earnt from that band you went to see, they all were created by the artist directly. The artist you love made the money that you decided to spend on them. Not some big company, you directly funded another person who does cool stuff you like, maybe you helped fund them doing more of it.
Delve into NFTs on Cardano...
The Cardano blockchain is a brilliant platform for NTFs. It has a large NFT community and its technology is one of the most suited out there for NFTs themselves.
Head over to our where to go next links page here