With Blockchain being a trending technology and cryptocurrencies like Bitcoin and Ethereum on the run, there is another entity which is catching everyone’s attention. These are “JUST JPEGs” called NFTs. But, what are NFTs?

NFT stands for Non Fungible Tokens. The word fungible means something which can be interchanged like to like with another identical item. If we take for example cryptocurrencies like ETH, we can exchange one ETH token with another ETH token without any difference and it will work the same. Or in real world, we can exchange one 10$ bill with another 10$ bill and they will work the same. On the other hand, NFTs are non-fungible in nature and they have unique identities or traits which makes it different from another NFT. In simpler terms, no two NFTs are same (or are not like to like replacement) and will at least differ in digital signatures.

First NFT was reportedly created on Namecoin blockchain. But Ethereum network popularized the concept of NFT with its smart contract capability. Some of the popular NFT standards on Ethereum network as ERC-721 and ERC-1155 standards. There are some new ones which have also been introduced but are yet to see their prime time (ERC-4337 and ERC-4885).

Before we dive deeper into ERC token standards we need to understand why do we even need NFTs and what are its use cases. NFTs in a way tokenize physical and digital assets that one holds and stores them on a decentralized and distributed network. Thus, any use case which has a need to create a distributed and decentralized way to tokenize any digital or physical asset can utilize the NFT standard. Let’s look at some of the use cases:

• NFTs as membership/subscription to a service - In current web2 environment, memberships or subscription are centralized in nature and mostly emails or phone numbers are used for managing those. NFTs held in personal wallet can act as proof of membership and subscription. As long as one owns the wallet they can access it from any location. This removes any dependency on a third party centralized service for login management.

• Digitizing the gaming asset - Most of the in game asset are platform dependent and assets owned on one platform cannot be carried over to another platform, or assets owned in one game cannot be used in another game. However, storing these in-game assets as NFT will lead to storing all the assets on blockchain and will be accessible to any games on that network. Wrapped NFT can be created to make the asset being available cross blockchain network (though whole NFT domain is still in nascent stage and lots is yet to be explored). This truly allows users to own the asset on blockchain as use it as they want. Game stats can be updated as metadata and will be persistent on blockchain and can be carried over across games.

• Proof of Ownership/authenticity - NFTs can be used as an immutable proof of owning high value collectible or assets. NFT can be displayed as a proof of owning the asset and avoids the need to carry the physical asset in some cases.

  Similarly, there are counterfeit products being sold which costs fortune to companies selling high value artifacts. Each product can come with a code which when scanned thru app will sent an NFT to the wallet connected to the app. This NFT acts as a proof of ownership of the asset and also any transfer of ownership can be tracked on blockchain.

• Proof of Attendance - One interesting use case for NFTs are proof of attendance (still in experimental phase). This is an interesting concept which has caught the imagination for new projects/influencers where anyone attending an event will get an NFT to mark attendance for the events. These can serve as a memorabilia to mark an important event, or can also be used as information to identify more loyal fan base and all sort of information. Similarly, there can be many activations planned around the NFTs used for proof of attendance.

There are some challenges in using NFTs as a technology solution. Some of the those are as below:

• Onboarding more people to web3 is a challenge owing to manage the wallet personally. As, handling the private key can be a hassle.

• Current transaction fee on blockchain are not suitable for micro transactions (this now is being handled by layer-2 solutions or some less decentralized networks).

• Less adoption rate leading to lack on eco system in place for wider reach.

• Current blockchains are technically inadequate to handle high volume transactions compared to traditional systems.

Despite the challenges, NFT industry is making strides and there are already billion dollar projects making moves to bring changes in the way traditional world works.