With all the hype, it’s hard to figure to figure out where to start. Here’s a quick and dirty intro to NFTs.

What are NFTs?

NFT stands for Non-Fungible Token - this is in contrast to a “fungible token” like Bitcoin where any two Bitcoins are essentially the same - each NFT is “unique”. Think of Bitcoin as the first wave of the blockchain, which was simple and just tracked numbers - this kicked off a series of “tokens” or cryptocurrencies, and this space you may have heard called DeFi, or decentralized finance. NFTs are the next wave, where instead of “money”, we’re exchanging “art”.

NFTs are enabled by an evolution in the blockchain called smart contracts, that can store data - such as images. The most popular chain enabling smart contracts is the Ethereum chain, and the currency on the chain is Ether. While smart contracts can be used for a variety of things, the ERC-721 is the most popular today - a contract used to track ownership of a digital asset - used in most NFT projects today. The other popular contract type is the ERC-1151 which allows for multiple of the same object (imagine a common item type in a game).

Not just JPEGs

I bring up game above, because this is where NFTs start diverging from traditional art. NFT ownership can be verified using your “wallet”, and many NFT collections now offer what’s called a “token-gated experience” - a part of the internet you can only access if you own a certain NFT. The most popular type is a chat room, and most project start with using a Discord bot (this is an automation you can integrate into a community chat app similar to Slack), but many are popping up that promise exciting games.

Since the NFT is the contract, not the image, it can store other data - which are called attributes. This data is available through APIs - which programs can query - so the characteristics of an NFT can affect game play. An easy example to understand would be having a fire related character NFT that would give you fire powers within a game.

Unique culture, unique business model

What’s most fascinating is that due to early projects that drove adoption - specifically CryptoPunks with their 10k collection - this has become the standard. Meaning access to games and experiences are available via ownership of a fixed number of unique items. Contrast this to original cartridge games, which essentially had unlimited supply - low cost, one time purchase. More recent business models include subscription or pay to play. In the NFT model, there is an initial sale that can be done before the game is ready - plus royalties on secondary sales of the NFT.

Quick note on royalties, NFTs can essentially be programmed to ensure royalty for the original artist from all secondary sales, standard royalties ranging from 5-10% with 2.5% of it going to the marketplace platform. This means artist or game developers can generate revenue by focusing on increasing value to the few people who are already bought in - as opposed to continuing to grow the customer base. From a creative standpoint, this removes the pressure to dilute/change a brand to cater to a larger audience - perhaps allowing for continued authenticity alongside success.

Next time

We’ll do an intro to purchasing NFTs!

Thanks for reading! Check out my project PixelBeasts coming out Oct 8th.

With all the hype, it’s hard to figure to figure out where to start. Here’s a quick and dirty intro to NFTs.

What are NFTs?

NFT stands for Non-Fungible Token - this is in contrast to a “fungible token” like Bitcoin where any two Bitcoins are essentially the same - each NFT is “unique”. Think of Bitcoin as the first wave of the blockchain, which was simple and just tracked numbers - this kicked off a series of “tokens” or cryptocurrencies, and this space you may have heard called DeFi, or decentralized finance. NFTs are the next wave, where instead of “money”, we’re exchanging “art”.

NFTs are enabled by an evolution in the blockchain called smart contracts, that can store data - such as images. The most popular chain enabling smart contracts is the Ethereum chain, and the currency on the chain is Ether. While smart contracts can be used for a variety of things, the ERC-721 is the most popular today - a contract used to track ownership of a digital asset - used in most NFT projects today. The other popular contract type is the ERC-1151 which allows for multiple of the same object (imagine a common item type in a game).

Not just JPEGs

I bring up game above, because this is where NFTs start diverging from traditional art. NFT ownership can be verified using your “wallet”, and many NFT collections now offer what’s called a “token-gated experience” - a part of the internet you can only access if you own a certain NFT. The most popular type is a chat room, and most project start with using a Discord bot (this is an automation you can integrate into a community chat app similar to Slack), but many are popping up that promise exciting games.

Since the NFT is the contract, not the image, it can store other data - which are called attributes. This data is available through APIs - which programs can query - so the characteristics of an NFT can affect game play. An easy example to understand would be having a fire related character NFT that would give you fire powers within a game.

Unique culture, unique business model

What’s most fascinating is that due to early projects that drove adoption - specifically CryptoPunks with their 10k collection - this has become the standard. Meaning access to games and experiences are available via ownership of a fixed number of unique items. Contrast this to original cartridge games, which essentially had unlimited supply - low cost, one time purchase. More recent business models include subscription or pay to play. In the NFT model, there is an initial sale that can be done before the game is ready - plus royalties on secondary sales of the NFT.

Quick note on royalties, NFTs can essentially be programmed to ensure royalty for the original artist from all secondary sales, standard royalties ranging from 5-10% with 2.5% of it going to the marketplace platform. This means artist or game developers can generate revenue by focusing on increasing value to the few people who are already bought in - as opposed to continuing to grow the customer base. From a creative standpoint, this removes the pressure to dilute/change a brand to cater to a larger audience - perhaps allowing for continued authenticity alongside success.

Next time

We’ll do an intro to purchasing NFTs!

Thanks for reading! Check out my project PixelBeasts coming out Oct 8th.