NFTs are the “big thing” in today’s crypto world. The future of the creative economy

Here’s what you need to know if you have a unique asset.

Like DeFi, ICOs before them, non-fungible tokens or NFTs have been identified as the future of the creative economy. How can we issue an NFT? Who can issue an NFT? Anyone can create an NFT, including artists, musicians, entrepreneurs, companies and platforms. The most important thing for the creator is to consider the value that the NFT embodies. An NFT is an opportunity for artistic and intellectual property creators to differentiate themselves by using blockchain technology to avoid being copied and better protect their rights. The main assets currently offered as NFTs are digital art, physical art, collectibles, in-game assets, virtual properties, rare video, etc. But they can also extend to physical assets such as real estate, cars, wine, recreational boats, investment gold, and countless others.

But what is an NFT really? Basically it is a unique, digital asset, analogous to a Pokémon card or a unique painting in real life (“La Gioconda”). But the sale of an NFT does not necessarily mean that we are selling the intellectual property associated with that asset. Additionally, multiple NFTs can be issued and sold in association with the same work representing the asset. However, it is not entirely clear what an NFT represents in terms of ownership.

In order to clarify or define a certain professional framework in which we can make decisions in this regard, we will analyse the attributes of Non fungible Tokens or NFTs:

1. From non fungible assets to NFTs

Non fungible assets are those assets that we know in our daily lives and that we can apprehend and that uniquely represent an asset (tickets to an event, paintings, patents). If we talk about types of fungibility we observe 3 types of assets:

• Fungibles: the best known, money. All coins or banknotes are equal and none are worth more than the others (of their series, obviously).
• Semi-fungible: seats on a plane between classes (business/tourist) or a run of unique books.
• Non-fungible: Any unique piece that has a singular creator and value different from others.

Non fungible digital assets (NFA or Non Fungible Asset) have been with us for more than 10 years. For example, skins in Fortnite are unique assets that can be bought and used in the game; however, skins in Lightnite are a unique asset (like NFAs), but because they are tokenised they can be stored, used or sold wherever you want. And in the near future we will even be able to use them as collateral or to generate DeFi products on them.

2. Intrinsic characteristics of NFTs

NFTs bear little resemblance to fungible tokens and therefore have a number of characteristics that make them unique. An NFT should not be defined by the standard to which it is manufactured, but by its tokenomic functionalities. Let’s see why this type of asset is attracting so much attention.

2.1. Ownership

Any token has an issuer, but an NFT has a method that only exists in the standards that represent it: ownerOf. This allows the token holder to be identified at all times as the owner of the token.

2.2. Interoperability

It should be clear by now that an NFT is a smart contract (SC) with unique characteristics. This SC can be stored in different wallets, executed in different applications (even with different front-ends) and traded in different metaverses (virtual worlds with inherent transactionality for NFT).

As SCs execute trades, each time they are invoked it could create an NFT that would always distribute 20% of the transaction to its originator, regardless of the underlying product being sold or the metaverse where the transaction is executed. Until now, it was impossible to maintain economic traceability so that the creator of any asset class always benefited; it required reliance on contracts and individuals, with the risk that this entails.

2.3. Cross-functional traceability

An NFT can be sold not only on any platform or metaverse, but in a multitude of ways: for example, I could sell my token on one platform by English/German/Danish auction, on another by traditional bidding, in an exhibition on Decentraland and in a fourth metaverse within an NFT PAM Bundle.

2.4. Liquidity

Whenever tokenising any type of asset, it is important to consider liquidity as crucial. Providing liquidity to an asset is necessary not only for the first buyer of the token but also to generate efficiency in secondary markets.

2.5. Demonstrable scarcity and programmability

Demonstrable scarcity is based on the combination of the max supply always published in the creation of the NFT with a clearly defined property as discussed in point 2.1 above.

3. About the standards for the creation of NFT

3.1. ERC-721

This is the most widely used protocol in the digital blockchain and in games, whose intrinsic properties (also available in the BSC under the acronym BEP721) are summarised in 2 simple methods: ownerOf and TransferFrom . These standards make them unique, unlike tokens which are based on the ERC-20 protocol. Another difference is that ERC-20 tokens are divisible while ERC-721 tokens are not. It is only feasible to create NFTs and perform one operation for each transaction.

3.2. ERC-1155

This is a more advanced and better standard than ERC-721 and is more aimed at the creation of semi-fungible tokens and allows the use of an infinite number of non-fungible tokens as fungible items in a single Smart contract, e.g. UNISOCK. This protocol allows to include over 100 or 200 functions in a transaction, also reducing the congestion of Ethereum blockchain, also reducing costs.

These tokens incorporate an additional method to the two previous ones: balanceOf, used to reflect the amount of tokens of that category that you are creating (for example, 500 swords of type A or 250 books of type B).

If we add the 3 most used standards in Ethereum (the 3 also available in BSC) we can see that we can create NFT with any of them, although with the first one we have more limitations (for example, we cannot associate the property to each token).

4. Metadata in an NFT

Finally, it is important to highlight that the introduction of metadata in an NFT is a fundamental task for 2 reasons:

• to relate the characteristics implicit in the tokenised asset to the asset – if it exists – in the real world, and
• to enrich the contract and to be able to create functionality in new layers a posteriori.

5. Conclusions

NFTs are not a passing fad, they are here to stay and we must pay attention to them. They allow unique assets to be monetised in ways that were impossible until now, both in terms of the traceability of returns and the way they are marketed and sold, on any platform or metaverse.

As these develop, we have no doubt that, in a very short time, we will see the emergence of a new economic-financial model, as has happened with DeFi, which has changed everything. And this is so, because as we can tokenise anything (a painting, a song, a short film or a podcast) the possibilities are simply immense. It opens up a huge range of possibilities that will explode creativity, reducing the power of intermediaries.

If you have a unique asset that you want to value through the use of cryptography and distributed ledger and blockchain technology, count on AddVANTE’s multidisciplinary team to make it a reality. We can really help you.