How did NFTs evolve and how do they work?

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2 years ago

Greetings, once again back to talk with you about topics of great interest to the community. A few days ago in the article: What are Non-Fungible Tokens (NFT) and why are you interested in knowing about them we talked about what Non-Fungible Tokens (NFT) were and what was the importance of learning about them, if so you want to you can review it before continuing with the reading of this article.

But since we cannot stop at just knowing a concept and because it is important, this time I will be delving into the origin of NFTs and the way they work, so that we understand a little more about the scope and potential of this type of crypto active.

How did the NFT phenomenon start?

With the creation of Bitcoin, the concept of "trustless" digital scarcity was introduced (that is, financial operations in which no intermediaries are required). Before Bitcoin, the cost of replicating something in the digital world was close to zero. The emergence of blockchain technology has made the digital scarcity or inability to duplicate the same programmable operation possible and is being used so that the digital world emulates the real one.

Although it is true that, in the digital world, even more so in the blockchain universe, it is sometimes difficult to determine the exact moment where a certain project is developed since there are many developers that simultaneously with similar projects, we are going to consider as precursors to those who popularized the use of NFTs.

The first mentions of Non-Fungible Tokens date back to June 2017, when the Larva Labs project, made up of Matt Hall and John Watkinson, launched CryptoPunks. This project consisted of a collection of 10,000 unique digital avatars, or graphic images of different faces, which can be acquired by users, who thus become the official owners of one or another avatar.

While these avatars could be downloaded by anyone, the image was linked to an Etherum code that stores information about its owner. In 2017, the creators of the project called it: "a strange intersection between these virtual and digital things and an artificial weirdness, but a weirdness that is real and valuable in a sense."

After the launch of the CryptoPunks, it was the turn of the CryptoKitties. a game built on Ethereum that allows players to collect, breed, and trade virtual cats. Developed by Dieter Shirley, the creator of the ERC-721 standard and released on November 28, 2017, by the Canadian firm Axiom Zen, this game was a real boom in the use and commercialization of NFTs and marked a milestone in popularity. of these crypto assets.

The fact of being a playful concept attracted many people outside the blockchain ecosystem to be able to design their own CryptoKitty, these were simply images of unique animated cats that were created with certain colors and characteristics, to later be collected, put on sale, or gifted to Other users.

Each CryptoKitty has different characteristics, age, race, or color, it is also possible to reproduce among themselves and generate new offspring, which have different attributes and values ​​compared to their parents.
This innovative collectibles game, a mix of Tamagotchis and digital Pokémon, achieved within weeks of its launch a fan base who spent $ 20 million to buy, feed, and care for them. Among the artists, singers, and celebrities.

These kittens have different prices ranging from $ 12 to $ 95,000, Genesis being the 'crypto-kitten' that set the record in 2017 when it was sold for 246 ETH ($ 115,000 at the current exchange rate, nowadays a little over $ 500,000). The Genesis record was then beaten by Dragon another CryptoKitty sold for the amount of 600 ETH or 1,200,000 dollars at the current exchange rate.

The great boom experienced by the CryptoKitties generated major operational problems in the Ethereum network due to the high activity it caused and the congestion of the same, which also highlighted the great development opportunities of the NFT market.

Other memorable moments from the NFTs

Here is a small account of the launch of some of the most popular NFT projects:

Gamedex, a trading card game platform through the use of Non-Fungible Tokens, raised an initial investment round of $ 800,000 in 2018.

Decentraland, a blockchain-based virtual world, raised $ 26 million in an initial coin offering and had an internal economy of $ 20 million in September 2018. A Decentraland package sold for $ 215,000 in November 2018.

CryptoKicks, Nike patents its blockchain-based NFT sneakers in December 2019, as a mechanism to attack the resale and counterfeiting of the sports firm's shoes.

Top Shot. Dapper Labs, in collaboration with the NBA, launched on October 1, 2020, an app in which you can buy packs that, they say, contain multimedia and exclusive data on the best moments of the NBA, as of February 28, 2021, Dapper Labs reported more than $ 230 million in gross sales on the app.

Singer Grimes sold around $ 6 million worth of digital art at Nifty Gateway in February 2021.

When You See Yourself, Kings of Leon's album from March 2021, is the first musical album distributed as non-expendable tokens.

The Italian band Belladonna became, on March 17, 2021, the first band in the world to hold an auction for a song using TNF that included the distribution rights to the master of the song.

How Non-Fungible Tokens work

As we discussed in the previous article, since NFTs are unique, no two are alike, therefore an NFT cannot be replaced by another identical token; This property is known as non-fungibility and is enforced through smart contracts that prevent duplication, while publicly visible blockchains allow evidence of scarcity.

Blockchain technology and its transaction record, as well as the use of smart contracts, provides NFTs with the following characteristics:

• Indivisible: NFTs cannot be divided into smaller denominations like bitcoin satoshis. They exist exclusively as a complete article.

• Not interoperable: one NFT cannot replace another within its ecosystem, for example, a CryptoPunk cannot be used as a character in the CryptoKitties game or vice versa. This also applies to collectibles like trading cards; A Blockchain Heroes card cannot be used in the Gods Unchained trading card game.

• Indestructible: the blockchain and smart contracts allow all NFT data to be stored, so each token cannot be destroyed, eliminated, or replicated. The ownership of these tokens is also immutable, meaning that players and collectors own their NFTs, not the companies that create them.

• Verifiable: another benefit of storing historical ownership data on the blockchain is that items such as digital artworks can be traced back to the original creator, allowing pieces to be authenticated without the need for third-party verification.

In practice, NFT tokens are metadata inserted into a digital file that has as many specifications as you can imagine and are inserted into the blockchain through smart contracts that make them indivisible and unique. In this way, if you acquire a Gif, for example, the creator's signature, its design date, when you acquired it, etc. will appear.

In the technical profile, the NFTs work and are transferred taking advantage of Ethereum's Smart Contract technology. They evolved from the ERC-721 standard, which, unlike the usual protocol for Smart Contracts that allows them to be divisible and interchangeable (what is necessary to create useful cryptocurrencies), encourages what is called ‘digital scarcity’. It is not very different from the concept of economic scarcity. Each NFT should be unique or have a limited number, so its value tends to rise.

NFTs can also be presented in different forms, this depending on the standard on which they are based, for example, ERC721 and **ERC1155 for Ethereum's NFTs, and TRC721 for TRON's. Each of these standards has its advantages and limitations, which can affect the types of NFTs that can be created, similar to how a chef is limited by the ingredients at his disposal.

ERC-721 standard

ERC-721 was the first standard smart contract to represent non-fungible digital assets, used for issuing and trading non-fungible assets on the Ethereum blockchain. This is a Solidity inheritable standard, which means that developers can easily create new ERC-721 compliant contracts by importing them from the OpenZeppelin library.

ERC-1155 standard

ERC-1155 brings the idea of ​​semi-fungibility to the TNF world, as well as provides a superset of ERC-721 functionality, meaning that an ERC-721 asset could be built using ERC-1155. This allows a single contract to contain both fungible and non-fungible tokens, opening up a whole range of new possibilities.

If you want us to delve more deeply into the characteristics and use of Smart Contracts in our blockchain world, do not hesitate to request it.

Well friends, so far we already know what Non-Fungible Tokens consist of because they interest us, how they originated and how they work, if you want to know what other interesting applications they have, as well as how they are marketed and other important data about NFT do not miss the next installment in this series.

I would very much like to read your appreciations and opinions on this topic, if you like the way it is developed and you want me to write about a particular topic, do not hesitate to ask me in the comment box, thank you very much for your attention.

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2 years ago