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NFT - what is it and what is it for?

NFT is a digital key based on blockchain technology. NFT cannot be deleted or replaced with another token because each token is unique and tied to a specific object. With NFT, you can sell and buy any digital object, such as music, images, 3D models, texts, games, etc. Ownership is registered on the blockchain and it is impossible to change the owner's information, so even if you keep NFT, the original authorship will be preserved. 

How does NFT work?

NFT works based on a blockchain. 

Blockchain works as follows: a user makes a transaction by purchasing a digital object. A new block is created on the network to represent this transaction. The other blocks then check the authenticity of the transfer and if no problems are found, the transaction is confirmed and the user receives his purchase. The transaction ends up at the end of the block chain, which is verified by experienced users. 

Thanks to NFT anyone can secure his or her ownership of a particular digital property. All media files and other objects will be added to the gallery, after which they need to come up with a name and description. Once all the procedures are completed, a unique token will be created and the author will have it at their disposal. 

That all sounds great, and NFTs may seem like a modern and relevant money tool, but it's not all that simple. Non-fungible tokens have the following problems:

Environmental 

It takes a really large amount of electricity to produce each NTF token. Blockchain servers as well as computers work around the clock, consuming a lot of electricity, which affects the approach of global warming as the amount of hydrocarbon residue increases.

And this problem is really topical - many famous artists and crypto-enthusiasts even declared that they will not sell their NFTs until the environmental issue is solved once and for all.

The vast majority of NFTs are associated with Bitcoin, whose servers consume more energy in a year than the whole of Iceland. And even though some NFTs correlate with less energy-intensive systems like Ethereum, they still consume a lot of resources, which is bad for the environment. 

Fraud

After the first sale of NFTs, many artists began to be actively hacked. The publicly available pictures were assigned NFTs and sold, and the profit went to the scammers. An entire community was even created on Reddit, where artists talked about cyber-attacks, shared information about hackers and called for blocking anyone who appropriated a token for their work.

Fuzzy legal concepts

Because the NFT market, despite its astounding popularity at the moment, is still in an active stage of development, the legal framework is also constantly and actively evolving - most countries do not yet have laws regarding NFT, so many people do not understand what guarantees they will have once they purchase these digital images, or what they can even do with them. The problems associated with the definition of intellectual property are particularly acute. 

How did NFTs evolve?

The NFT phenomenon didn't come about now, as you might think with the widespread boom. The first NFTs appeared quite a long time ago - about 10 years ago. The first such tokens are considered to be colored coins. They were bitcoin elements with additional characteristics set by their creator. These colored coins could become anything from a coupon to a full-fledged currency. But the problem with developing colored coins was that these uses only had value if everyone involved in the transaction agreed to them. 

As for more specific examples of NFT, we can think of May 3, 2014, for example, when artist Kevin McCoy created the first completely unique token called Quantum. It was a digital image of a pulsating octagon. In 2021, it was sold at an auction at Sotheby's for $1.4 million, its value is now close to $7 million. 

In the same year, Robert Dermody, Adam Krellenstein and Evan Wagner founded Counterparty, a peer-to-peer financial platform that had a distributed, open-source Internet protocol based on blockchain technology. Counterparty had a decentralized exchange, its own XCP token and allowed the creation of unique assets. In 2015, in cooperation with the creators of the game Spells of Genesis, BitCrystals token was launched, which was used as game currency. In 2016, the platform signed an agreement with the popular game Force of Will, which had never worked with blockchain and cryptocurrencies before.

And if NFT used to be a fairly localized niche that was largely reserved for games or cryptocurrency enthusiasts, times are changing. This digital art is inevitably moving into our everyday lives. Perhaps one of the most serious paradigms came on Valentine's Day 2018, when Irish photographer Kevin Abosch auctioned off an NTF called Forever Rose. It was then purchased by 10 people, each paying $100,000. Many artists, looking at this situation, also began to try to realize themselves in the NFT-sphere, investing a lot of effort and time into it.

Of course, NFT is not only about drawings. These coins very often appear in the Ethereum-based decentralized virtual reality platform. The first was Decentraland, whose players can explore the game world and find all sorts of things that will belong to them legally, and which can be traded, receiving both in-game items and real money.

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