Mar 22, 2021
With the ability to easily exchange unique assets (such as art and music), to open opportunities for future royalty earnings, to create secondary markets, and more, non-fungible tokens (NFTs) are leveraging the power of blockchain to create a new economic dynamic for the people they serve.
In this guide, we delve into non-fungible tokens and explore Algorand’s potential to lead this emerging industry.
Non-fungible tokens, or NFTs, are a type of digital asset where each token represents a unique digital or physical asset.
Each NFT has a cryptographic signature tied to the account that owns the NFT that enables ownership to be traced and verified at any time. This is in contrast to a fungible digital asset, such as the stablecoin USDC. With USDC, all coins are fungible, meaning that no one cares if you replace any USDC unit with another USDC, as they are all the same. When it comes to NFTs, they follow a different standard and have their own unique value.
NFTs may be representations of physical items, such as real estate or luxury cars that can be tokenized, or digital items, including art, trading cards, music, books, real estate, and video.
While NFTs are now becoming mainstream, the concept first saw broader recognition in 2017 thanks to a crypto collectibles game called CryptoKitties. The blockchain game allows users to buy, sell, collect, and donate virtual cats, each represented by an NFT.
NFTs have expanded beyond CryptoKitties and other virtual collectibles. Today, NFTs are used to represent a wide range of digital and physical assets in tokenized form. In the future, NFTs will become more complex by integrating with advanced blockchain, smart contracts, and interoperable solutions.
For artists, NFTs represent new ways to monetize works of art, in both the short and long term. By distributing their work as NFTs, they can interact directly with those who want access to their creations. For example, this eliminates the need for galleries who take large percentages of sales or charge rent for displaying the pieces, opens the opportunity to monetize future subsequent transactions of their art, and creates the potential for secondary markets and shared ownership.
This democratization of content creators and consumers extends to digital art, physical pieces, music, video, and more. Nadya Ivanova, COO of BNP Paribas-associated research firm L’Atelier, told CNBC that collectible digital assets could be regarded as a better alternative to MP3 files. During the last decades of digitalization, music artists have struggled to generate revenue. Ivanova explained that artists are turning to NFTs to prove ownership of their work and monetize their songs and soundtracks. She added:
“It’s allowing content creators to actually own the property rights for what they create, which allows them to profit from it in different ways which they can’t do with physical art”
Sports memorabilia provide athletes and teams new ways to engage their fan base. NBA Topshot, a popular marketplace for sports collectibles, enables users to trade NFTs representing video highlights of basketball games. In February, a pool of investors paid over $200,000 for a video with LeBron James.
Super Bowl champion Rob Gronkowski is among the first professional athletes to release his own NFT cards. He told Reuters that he anticipated the rarest one to generate “millions.” The American football star noted:
“I always was a big collector of trading cards. And now it’s super cool to be able to give my fans this opportunity and to be the first athlete out there to have a digital trading card”
NFT collectors have the digital rights of ownership, which can be proven anytime since public blockchains provide a transparent and immutable ledger. Purchasing NFTs can be a form of alternative investment or simply a passion for those who want to pay for a unique experience.
A February 2021 study from NonFungible.com and L’Atelier estimated that the total value of NFT transactions rose 400% to $250 million in 2020. L’Atelier’s Ivanova explained:
“We’re seeing a new generation of traders within the NFT market; people who are digitally native looking for digital native asset classes outside of established asset markets. These are people who have amassed reputation and wealth and want to invest it in purely virtual assets like NFTs”
There is a huge influx of new traders, investors, and collectors, mostly from the millennials and Generation Z cohorts who are keen to promote the digitalization trend.
The emerging NFT market comprises a number of different parties including content creators, artists, game developers, brands, content consumers, investors, collectors, fans, and marketing places that connect buyers and sellers. The ecosystems around NFTs will be built out further on platforms that enable simple user access while also providing capabilities that empower NFTs with more functionality.
While investors and speculators are probably dominating the market right now, there is a significant opportunity for increased utility. This is exciting, given that the global collectible market is almost $400 billion, and NFTs will play a role in the changing economics of this segment.
One of the more advanced blockchains that unlock the potential of NFTs as they become a catalyst for change across DeFi, collectibles, arts, gaming, and more is Algorand.
Focused on building technology that accelerates the convergence of decentralized and more traditional models, Algorand enables the simple creation of next-generation products, services, and a new powerful way to exchange value. For the first time ever, artists, musicians, and creators are now empowered to sell their creations directly to their fans while keeping most of the monetary value -- creatives are now getting paid properly. Key factors that distinguish Algorand from other legacy blockchains are the creation of NFT’s is easy, they will live on a forkless blockchain, has very low transaction fees, is fast and secure, and more importantly, is carbon neutral and will not affect the environment with optimal CPUs.
Algorand is committed to frictionless exchanges like NFTs that are opening doors for a new economic reality that is the Future of Finance. By bringing the benefits and cost efficiencies of the Blockchain and DeFi infrastructure to traditional asset tokenization, there’s an unlocking of opportunities and business models that have never existed before.
Developers can easily issue NFTs through Algorand Standard Assets (ASA), which is a functionality that enables the issuance of new digital assets straight in Algorand’s Layer-1 blockchain. ASAs can also be created or manipulated in smart contracts with more advanced capability.
If you build your NFTs on Algorand, you will benefit from a forkless, reliable, secure blockchain that ensures that your one-of-a-kind NFT is protected, can never be replicated because it sits on the only blockchain that is mathematically proven to be immune from forking. What’s more, Algorand offers an ample set of developer tools and resources to customize tokens in many ways.
Both fungible and non-fungible tokens supported by Layer-1 can also be in restricted mode, which helps issuers comply with regulations. Restricted version tokens are the ones that can be sent only to certain accounts in the Algorand network. The restrictions can depend on location or other parameters. For example, this function can be very helpful for real estate NFTs and digital ownership registries.
Algorand is enriching the NFT industry thanks to its low-cost transactions and near-instant block finality that enables fast transactions. This is especially important for NFTs representing in-game items, as players need fast transactions without high fees.
Algorand has become one of the most important blockchain ecosystems as it enables developers to build DeFi and other Dapps easily and securely. The Layer-1 architecture supports the deployment of smart contracts as well as the creation of Algorand standard assets. The ecosystem is very flexible and is built with the future in mind.
Building NFTs on Algorand means benefiting from an infrastructure of customizable options and unique functionalities.
Algorand is poised to become a leader of the NFT market, supporting a wide range of use cases built around these unique assets.