Everything you need to know about digital collectibles.
September 27, 2022 · 3 min read
What are NFTS
NFTs are unique tokens that live on a blockchain. NFT stands for non-fungible token. Non-fungible means that each token is unique. Each token has unique information (token ID & metadata) which, because it is stored on a blockchain is highly censorship resistant.
The potential use cases for NFTs are virtually endless. As with any nascent technology ambitious projects, developers, and entrepreneurs are dreaming up future use cases and rushing to build products or even define new product categories in an attempt to position themselves for the next big wave of NFT innovation.
The most prominent use case for NFTs is to prove ownership of digital art/collectibles. This could take the form of a large generative art collection like CryptoPunks or Bored Ape Yacht Club, one-of-a-kind photography, or digital collectibles like SoRare fantasy football cards.
Token gated communities/resources are another perfect use case for NFTs that is used quite widely in the web3 world. In this case, your NFT becomes essentially a membership pass for online or real-life experiences and/or services.
While the two use cases above are far and away the most well established there are projects building NFT use cases that will likely revolutionize many more industries in the future. To see a few examples of sectors that have already begun dabbling in NFT technology but are far from full implementation just look at; video games/metaverse, decentralized finance, governance (DAOs), sports, supply chain, real estate and fractionalized ownership.
Strictly speaking, an NFT is simply information stored on a blockchain. Because blockchain was not designed as a storage layer there is actually not much information that can be stored directly on the blockchain. The image for most NFTs, for instance, is usually stored in a server and the metadata of the NFT has a link pointing towards the image. There are some fully on-chain art NFT series but they are an outlier and are only able to achieve this because they use extremely small image files.
Understanding exactly what is and isn’t on-chain may seem a bit like splitting hairs but, it’s an important concept to think about if you want to understand what an NFT is… after all, if it’s not on-chain, it’s not an NFT.
Some projects intentionally don’t store their images on-chain because they have plans for their NFT images to evolve; data stored off-chain can be modified. While storing the image data off-chain can add functionality, like upgradeability, there are other nuances to consider. This could create a scenario where a project is abandoned, the fees to host the image data stop getting paid, and you end up with a token in your wallet with no artwork. If the image is stored on-chain even the project creator cannot change it; as long as the blockchain that the NFT lives on is alive the information that makes up the NFT is immutable.
NFTs are immutable proofs of ownership that are tradable peer-to-peer and that can be stored in a self-custodial wallet. We’ve barely scratched the surface of the disruptive power of this technology. If you’re reading this then you are thinking about these concepts at an early stage and you have a tremendous opportunity to position yourself for the next big wave of NFT innovation.
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September 27, 2022 · 3 min read