What is an NFT and what are its use cases?

Sept. 2022, Vincy

Data Source: Footprint Analytics — NFT Market Overview

NFT stands for “non-fungible token” — unique, verifiable and immutable proofs of ownership of digital goods. Unlike cryptocurrencies, NFTS are unique and indivisible. I.e. 1 BTC = 0.5 BTC + 0.5 and 1 NFT ≠ 0.5 NFT + 0.5 NFT.

NFTs non-fungibility allows them to mark asset classes and numbers. In this way, each asset has its own unique number, and buyers can also prove their ownership of the asset through an NFT.

The five most common types of NFT collections are:

Collectibles
Art
Games
Metaverse
Utility

Screenshot Source — footprint.network

What are the 3 main protocol standards for NFTs?

The ERC-20 protocol is the earliest and most popular token specification protocol on Ethereum, and it is the protocol standard for fungible tokens. If both tokens on the Ethereum platform are issued in ERC-20, such as BTC and ETH, they can be freely exchanged. Because of this, there is almost no claim to scarcity for fungible tokens.

From development to now, most of the NFTs are also created on Ethereum, forming three main standards.

ERC-721

The ERC-721 standard was created and published by Dieter Shirley, CTO of CryptoKitties, one of the first NFT creators.

NFT projects usually use the ERC-721 standard to issue NFTs. ERC-721 and ERC-20 have similar properties — they both store digital asset information on the same blockchain, but the difference is that ERC-721 is unique.

An ERC-721 can be a picture, a house, a car, or anything else. It can also facilitate tracking, trading and real asset transactions and management.

ERC-1155

As gaming virtual assets continue to grow in popularity, it’s not enough for assets to only be available within the Ethereum ecosystem. However, the ERC-1155 standard enables assets to be compatible with other ecosystems, and cross-chain compatibility is the main advantage of ERC-1155.

For example, it allows several types of tokens to be handled in a single contract, including both fungible and non-fungible tokens, which also greatly improves the efficiency of token transactions. However, it cannot be destroyed directly, unless the original developers buy back the tokens regularly, they will remain in circulation. The benefit from this is the scarcity of tokens.

ERC-998

ERC-998 is an extension to the ERC-721 standard that allows the creation of synthesizable tokens. For example, in a game, ownership of a game character represents a non-fungible token, while equipment ownership represents another token. If it is the ERC-721 standard, they cannot reflect the affiliation. ERC-998 allows users to synthesize them into one token, which improves the efficiency of asset transfer.

How do NFTs work?

NFTs can be almost anything — collectibles, artwork, gifs, in-game assets, etc. Their value is also mainly determined by the market and demand, so they are bought and sold just like real physical art.

Most NFTs are kept on a blockchain, which is a distributed database used to record and store valuable information.

In addition, those who own NFTs have exclusive ownership, and they can use blockchain technology to verify their ownership and the transfer of tokens between owners. Creators can store specific information in the NFT’s metadata to track their asset transfers.

What are some NFT use cases?

The application scenarios of NFTs are very wide. Developers can map real and touchable objects into the NFT field, such as collectibles, virtual worlds, identity verification, fashion entertainment, photography, electronic tickets, music, sports, in-game item assets, domain names and animations and other application scenarios.

Screenshot Source — OpenSea Art Types

Property in Decentraland by John Lam at (29,-5)

Ranked by market capitalization, collectible NFT projects such as BAYC, CryptoPunks, MAYC and Otherdeed continue to lead. The most representative of the art category is Art Blocks Curated. Among them, projects like CryptoPunk are not only created early, but also the most symbolic avatars in the NFT sector.

*Footprint Analytics — *Top 10 Collection

What are the major NFT marketplaces?

OpenSea is currently the world’s largest NFT trading platform, established in January 2018. It covers a wide range of NFT categories and integrates NFTs from various platforms. It is currently the most used trading platform by mainstream NFT developers and enthusiasts.

*Footprint Analytics — *Total Number of NFT Market Collections by Chain

Newer marketplaces include Magic Eden, X2Y2, Looksrare and SuperRare.

Magic Eden is a Solana marketplace (though expanding to Ethereum) with several optimizations and features. These include the option to pay with a credit card, while new users can access NFT without having to buy cryptocurrency beforehand to pay. Another handy feature is their list management tool with a whitelist, which simplifies the process for NFT creators, while locking NFT casting with the platform.

The current version of X2Y2 launched on February 19 and attracted users to trade on its platform with the advantages of low transaction fees (0.5%) and shared pledge rewards.

*Footprint Analytics — *Daily NFT Market Ranked by Volume

SuperRare is a peer-to-peer marketplace built on non-forgeable ERC-721 NFTs on Ethereum, and focuses on trading rare artworks. Artists can auction their creations or sell them for a fixed price. The platform features advanced management, an easy experience, flexible payment options, a social profile and a mobile APP that allows for real-time auctions.

Summary

With the continuous development of blockchain technology, various types of NFT and trading platforms have emerged to realize digital corroboration, circulation and trading methods, accelerating the trend of digital assetization.

This piece is contributed by Footprint Analytics community.

The Footprint Community is a place where data and crypto enthusiasts worldwide help each other understand and gain insights about Web3, the metaverse, DeFi, GameFi, or any other area of the fledgling world of blockchain. Here you’ll find active, diverse voices supporting each other and driving the community forward.

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