LThe non-fungible or NFT tokens are one of the solutions that can be created on the tecnología blockchain. It has also generated a lot of interest. But why this explosion of interest in NFTs? What exactly are they? What is its usefulness?
In this article we will answer all of this, starting by answering in detail what an NFT is and what makes them work in broad strokes.
Non-Fungible Token (NFT Token), uniquely representing the world
First of all, we must understand exactly what is a non-fungible token or NFT (from English Non Fungible Token). In this case, we can explain NFTs as follows:
A non-fungible token is a cryptographic token that has the ability to be a unique and unrepeatable token. One that cannot be divided but that can be used to represent objects in the real or digital world along with its own characteristics, as well as its ownership, while maintaining all of this within a representation on a blockchain through a smart contract.
This fairly simple concept gives us a clear idea that the NFTs, unlike the tokens that we already know (also called fungible tokens), serve to represent unique objects that are not divisible by their properties, without meaning the destruction of that object, be it real or digital.
A good example of an NFT token would be a collectible. A digital card of a famous sports figure, with a limited stock and, with unique digital markings, is a perfect example of a digital NFT token. However, the same happens if, for example, the card were real and we bring its properties to the digital world using a blockchain. In this case, the physical card has a digital representation, but said representation would only serve to control the possession of the physical card, allowing us at all times to track its authenticity, who has had the card on previous occasions, and verify that it is indeed the card we want.
But you will ask yourself at this point how is this possible? What is it that allows NFTs to function as they do within a blockchain?
Smart contracts, the key behind NFT tokens
The operation of the NFTs or non-fungible tokens depends on smart contracts or smart contracts. The job of these "programs" within the blockchain is to allow users to create this type of special tokens to represent with them what they want. Virtually anything can be represented digitally, and blockchain is perfect for it.
Let us remember that a smart contract is a small programming within the blockchain, which allows us to tell the network to store the information that we indicate in a transaction. In this way we can access or interact with the information when we need it. All this without forgetting its main properties, that is, in an immutable and transparent way.
In this case, the programmer of a smart contract for an NFT token can create a program with the desired capabilities, having enormous creative freedom. Thus, practically anything can also be stored within an NFT token, if we have the smart contracts designed for this purpose.
For example, an insurance company can create a blockchain insurance platform, which stores in an NFT the identity and the necessary permissions to access a policy for its clients. Advantage? Some of the user's information could be readily available anywhere in the world, it could be easily verified, and the policy usage tracking is done transparently.
Another good example can be the digital identity, which could also be represented with an NFT: each person has a unique identity, and a digital identification protected by a cryptographic NFT would allow us to have unique, unrepeatable and secure digital identities.
Of course, all this is possible thanks to blockchain and smart contracts, leaving us with another question: What blockchain platforms support the creation of NFT? When did the NFTs begin to develop?
Origin and development of NFTs
The above questions quickly take us on a historical journey and thus answer the question When was the first NFT developed? Contrary to what many people think, the world of NFTs did not start in Ethereumbut in Bitcoin.
In the years 2012 and 2013, Bitcoin began to develop the well-known Colored CoinsThese were a type of tokens that allowed developers to use the Bitcoin network and coins, to represent other assets, tokens or unique objects with them. The idea behind the Colored Coins was started by Yoni Assia, known to be the founder of eToro, and who presented a paper explaining his idea. As a result of this work, a series of projects were born such as BISQ, OmniLayer (where the first version of Tether USDT), RSK o Counterparty. This then brings us to the first NFT in history, Rare Pepe, which is still working and accumulating more and more value within the Bitcoin and CounterParty network.
However, the highest cost was for the planet. Only one of these wee wee pads takes approximately XNUMX years to decompose. Putting ourselves in the best of cases, a dog uses XNUMX pad daily for only XNUMX years of his life, so when he is a puppy and when he is elder he would use XNUMX soakers in total. If we take into account that only in Spain there are XNUMX million dogs, mostly of mini race, with greater tendency to use wee wee pads and assuming that at least XNUMX% use them, we are talking about a figure of XNUMX wee wee pads that are used daily. Tons and tons of waste are thrown daily to the planet so that our dog does not spoil our house. Bitcoin Script (the Bitcoin programming language) is not designed for such tasks, making it extremely complex to design highly interactive NFT platforms. That is why Ethereum has exploited its ability to perform more advanced smart contracts, being able to design much more complex NFTs. The latter is what has made Ethereum the leading NFT platform in the entire crypto world, a trend that will surely continue to be driven by its powerful tools and standards. ERC-721 y ERC-1155, which allow creating NFT tokens very easily and following a shared standard highly integrable with other services.
However, Bitcoin and Ethereum are not the only platforms with the ability to create NFTs. Other blockchains like TRON, EOS, Tezos, Solarium, among others, they also have the ability to work with NFT, all thanks to its advanced smart contract properties.
How does an NFT token work?
The operation of NFT tokens may vary depending on the blockchain platform where they are executed. That is, each blockchain platform has a series of capabilities that make NFTs able to act in one way or another. Thus, for example, the NFTs in Ethereum may have slight differences in operation (internally) if we compare it, for example, with those of TRON or EOS.
However, these differences are mostly small, adjustments that are made so that the operation of smart contracts adapt to the blockchain infrastructure where they are executed (such as the programming language used, the way in which access is handled and the limits and resources that can be used within the network). Of the rest, the operation of the NFTs follows certain parameters that we can call standard and, which generally follow the structure dictated by Ethereum with its ERC-721 and the most recent ERC-1155 standards.
With the creation of ERC-721 and ERC-1155, Ethereum managed to create a couple of tools that greatly facilitate the creation of NFT platforms within Ethereum. To do this, it provided both standard smart contracts with a series of functions and capabilities that all NFTs may need for their control and development. Thus, for example, the ERC-721 and ERC-1155 allow you to create, transfer, modify and even destroy NFTs, if necessary.
How to create an NFT token?
Let's show an example for testnet, but remember that on the main Ethereum network it is exactly the same, only with real ethers.
If we want to create an NFT token, all we have to do is copy the ERC-721 smart contract code, modify the data we want (for example, give it a name) and take it to a test blockchain to execute said contract from it. By making a transfer of ethers (test) to the contract address, we can create an NFT token that is stored in our testnet address for Ethereum, and with that we have created a test NFT. Being of tests, these are worthless, in fact, in all this we have not spent a penny (remember the testnet networks only use tokens that are not worth anything).
Just as we have created the NFT token, we can transfer it (by transferring our ownership of the token to another person through a transaction). Thus, we can modify its properties (in case the platform allows this capacity. But in reality you are only creating a new token with new properties and "burning" the previous one), or even destroy or burn the token completely, if you wish. . In any case, these operations are possible because the smart contracts and the platform's programming allow it, nothing that has not been previously programmed can be carried out.
Now, Ethereum developers created ERC-721 and ERC-1155, while the rest of the NFT-capable blockchain has replicated and adjusted those capabilities to their respective projects. So, for example, a TRON developer is able to take an ERC-721 project for Ethereum, and adjust it to match the TRC-721 standard (TRON's NFT standard) and run it on that blockchain. Result? A copy of the smart contract in TRON, with the same capabilities, but with completely different NFTs, and that for a very good reason: the copy of a smart contract does not mean that the NFTs associated with them are copied, each of them is unique and unrepeatable.
Pros and cons of NFTs
Now, NFTs have their pros and cons like any technology, and in this section the following can be highlighted:
- They allow to represent in a unique and unrepeatable way digital and real objects within the blockchain. So we can use this technology to manage these objects safely at all times. Do you want to tokenize your house or your car using an NFT? You can do it, at this point your imagination is the limit.
- The development possibilities of NFTs are practically endless, anything you can represent digitally can be turned into an NFT. For example: domain names (those used to identify web pages) can be represented as an NFT within a DNS on the blockchain. In fact, this is exactly what happens with the project Namecoin y Ethereum Name Service.
- The creation of NFT can be adapted to any blockchain, and it can be implemented in such a way that it is very secure. An example is Bitcoin, which with its limited programming capacity is capable of representing NFTs, but keeping the security risks for such assets to a minimum, it manages to represent NFTs.
- The existence of standards makes their creation, implementation and development easier.
- Possibilities for cross-chain interoperability with projects like Polkadot or Cosmos.
- Although there are standards to develop NFT, they are not infallible, nor complete in terms of functionalities. This is the main reason why, for example, the ERC-721 token of Ethereum (the most used for NFT in Ethereum) seeks to be replaced by the ERC-1155 token, which is much more secure and has new functions.
- NFTs are managed by complex smart contracts, which makes their operations complex and heavy (in terms of information). These two things that increase the value of the commissions that must be paid to carry out transactions. Simply put, running NFT can be expensive, especially if the network is congested and commissions skyrocket.
- Like DeFi, NFT platforms are more susceptible to hacks, because everything is managed by smart contracts and additional interfaces to control them. This entire layer of programming adds attack vectors that can be exploited by hackers for malicious gain.
Uses of NFTs
The possible uses of NFTs are practically endless. Today, many NFTs are used to create games or digital collectibles. This due to their rarity and uniqueness they have a very high value for their owners.
In fact, the field of NFTs within the gaming world has started to attract a lot of attention in this industry. For example, an RPG (Role Play Game) game may use NFT tokens to represent the objects within the game. At that point, some of these items can be very, very rare in the game, which would make them very valuable to players. Usually these games include a market to exchange these objects. So; If you can unite an object with great value, a market and create a supply / demand dynamic, you can create an economy within the game. This can generate large profits for the gaming company, even if the game is free-to-play (F2P).
For example, games like Minecraft, EVE Online, DOTA2 or World of Warcraft have quite expensive items to their credit (speaking in real money terms). So this is a way to further monetize these games. If additional, an element of NFT and interoperability is added, the possibilities at this point are practically endless.
Another use that we already highlighted are collectibles. Things like stickers of your favorite team, players, curious collectibles, paintings, and others, can also be represented by an NFT. In this way, they can be exchanged or sold in markets for this type of transaction. Digital identity, which is another use that we already talked about at the beginning, is also possible to be represented in an NFT.