What is an NFT?

NFTs or Non-fungible tokens have taken the entire world by storm in 2021 and proved that an unimaginable, unthinkable revolution can take off mainstream at an exponential speed in a digitally connected world. However, NFTs are not a spin-off from the blockchain technology but rather an extension in Web3, of a concept that has long existed since centuries - that of proof of ownership. It could be that of a rare piece of art, collectible, statue, or even a document.

Let us understand what is fungible and what is non-fungible. In layman terms, non-fungible are rare and unique items that can’t be exchanged with similar items. Whereas fungible stuff can be traded with similar fungible stuff. In the Blockchain world, fungible tokens are cryptocurrencies like Bitcoin, Ethereum, etc whereas non-fungible tokens are assets such as art-form or crypto assets that are stored on a particular blockchain with unique metadata that distinguish them from each other. Sounds a bit technical?

Let's oversimplify this. Imagine a scenario when you have a bank account that holds your money and a locker in the bank that holds your important documents or even some precious items, rare art, etc. that belong only to you. In the case of museums that locker is the storage space itself, well guarded by security and watched continuously for theft/forgery attempts, etc. In the Web3 world, this money is synonymous with cryptocurrency, your bank account is like a wallet, and precious items, arts, etc. are like NFTs or your Digital assets. The lockers are also synonymous with a wallet where you store your NFTs. However, most of the wallets in the Web3 world can hold both your money i.e. cryptocurrency, and your assets i.e. NFTs. In this case, it's the wallet itself that acts like a bank account as well as a locker/storage space. Hope it makes sense, else we will deep dive into this topic below and in future articles. However, before we go further into NFTs, let's understand a bit of “NFTs historical connection with Art i.e. Provenance” a bit.

Tracing the history from Provenance to the start of NFT era

To understand the connection, one must be aware of a term called “The Provenance”. Provenance is a document that brings authentication to a piece of art, historical object, and even a work of scientific and industrial domain. This concept is very close to what copyright, trademark, or a patent would be but generically applies to creative art, collectibles, and rare exquisite stuff.

The concept has been practiced ritually by all the major museums and collectors in the world centuries for now. The term dates backs to the 1780s and has been largely used for establishing a “chain of custody” for a particular painting or art form. This “chain of custody” is really important as not only does it authenticate moral and legal ownership of the art, but also increases the value of the same. A well-recorded provenance will capture the essential information such as date of creation, artist name, subject of painting, description or thoughts about the painting, the list of owners of the painting along with the year of purchase, etc. A well-recorded provenance can itself define the history of a painting and become part of the narrative as well. For example, check out the Wikipedia article here about the provenance of the Arnolfini portrait.

As time passed, with the industrial revolution and the era of knowledge appearing in the 20th century, this record-keeping became more efficient. The libraries, museums, private collectors started documenting provenance records in the form of independent secure ledgers that were preserved for any future disputes or establishing the chain of custody. Many auction records are an important resource for finding the provenance of the historical art and getting the “chain of custody” records of owners.

However, a very ground-breaking invention in the 20th century bought a frame shift in the entire art & collectible domain. And that invention was that of Photography. Now, one can click a picture of a 15th-century painting and reproduce it via film negatives. Photography took to mainstream very fast in the early 20th century and has seen a lot of changes from Black & White only to Fully Colored to a completely digital form by the start of the 21st century. Establishing the authenticity and “chain of custody” to pictures was rarely required and limited only to professionals and not the mainstream consumers of art and photography. However, there remained value of rare art and collectible and a significant fraction of society had the appreciation of fine art along with its provenance.

In fact, there are websites like Artwork Archive (https://www.artworkarchive.com/), that provides an unconventional way of capturing provenance using its software tool, that appears something like below :

Not only that, many renowned artists like Andy Warhol would always sign his painting in a unique way that could help distinguish his original works from counter fake. Read here.

Spoiler’s Alert → Andy Warhol’s NFT have raised $3.38 Millions and above. Check here

However, blockchain presented a very unique opportunity to capture provenance as a “Smart Contract” on the chain itself. It was possible to create digital art and store it on a blockchain server along with authentication of its metadata. Such a contract would list down the details of the transfer, timestamps, price, ownership status (chain of custody).

The first NFT was created in 2014 by Kevin McCoy known as “Quantum”. It was (or is) a pixelated octagon filled with multiple shapes inside such as circles, arcs etc., and looked like below (source - click here) :

Today one of these Quantum NFTs goes for even as high as 7 Million Dollars in resale value. However, the real category was created by phenomenon NFT Collections such as Cryptopunks, CryptoKitties, Bored Ape, Rare Pepe, Beeple’s, etc.

NFT History - 2012 to 2022 (now)

However, there are many debates about which was the first NFT or Art whether it was Quantum NFT or something else. Especially, many argue that colored coins were the first NFT to be launched in 2012-13.

Colored Coins were a concept introduced on Bitcoin blockchain and had use-cases such as properties, coupons, digital art, collectibles, documents, etc. Colored Coin was an important attribution for Bitcoin. It was captured in documents titled Bitcoin 2.X and Colored Coin BitcoinX where it's spoken about how colored coins are part of a genesis transaction. (FYI Vitalik Buterin, founder of Ethereum was a co-author of Colored Coin BitcoinX paper).

In 2014, Counterparty emerged, an open-source platform that was built on a bitcoin blockchain server with its native currency XEP. In Counterparty, assets could be created such as trading coins, games, etc. There was an option of “proof of burn” for the native currency XEP. Spells of Genesis was a game that emerged on the Counterparty platform and had its native currency called BitCrystals. Players could use assets inside the game that could be stored on a blockchain. This was the first game to implement this in-game asset ownership authenticated by Counterparty. Another game, Force of Will or FOW, emerged out on Counterparty, and was a popular trading card game only behind the likes of Pokemon et al. Add to that, these guys had no experience in Blockchain technology beforehand.

And then in 2016, blockchain space saw its first meme revolution via Rare Pepes. Pepes are a frog character with a humanoid body, especially the head. Pepe, the frog was already trending for a decade on the network such as MySpace, Tumbler, etc. Check out https://rarepepes.com/ and the popular meme exchange site such as http://rarepepedirectory.com/

In 2017, Rare Pepe went mainstream on Ethereum blockchain via PEPERIUM, a new meme marketplace. Rare Pepe Directory, although had a showcase of Counterparty-based Rare pepes. However, it was not completely decentralized as the website itself was coded on WordPress. PEPERIUM concept was to launch a marketplace on IPFS (https://ipfs.io/ ), an interplanetary file system for sharing and storing data in a distributed file system. This would complete the decentralization of Rare Pepes and make it a true blockchain-based asset marketplace for Rare Pepes. Peperium also had a native currency, known as the RARE token.

Don’t worry if the above image was too technical for you to understand. However, just picture a currency that can be used for trading card creation, sales, gaming, etc., and available on an Ethereum based blockchain. (We will deep dive into different blockchains for NFTS later).

Subsequently, two technologists Matt and John created an NFT project, called Cryptopunks. However, a unique thing they did was they generated these characters on Ethereum Blockchain and two characters would be the same. Also, they released the Cryptopunks entirely for free which caused a stir in the entire blockchain community.

By early 2018, NFTs had gone mainstream with the entry of NFT marketplaces such as OpenSea, Mintable, etc. And thus began, the era of NFTs.

NFT Blockchain Standards

Now, you might have stumbled upon this term- ERC for anything related to blockchains and NFTs (see picture above for ERC20-compliant tokens for Rare Pepes). ERCs are a set of standards used to create smart contracts on an Ethereum Blockchain including NFTs. Apart from ERCs, there are other standards used to create NFTs such as Flow, Tezos, etc. Let's discuss these standards below :

• ERC Standards: The term ERC stands for Ethereum Requests for Comments. These are technical documents used by smart contract developers on the Ethereum blockchain. Smart contracts are built on a programming language known as Solidity. ERC standards define a set of rules related to specifications, contract descriptions, etc. on the blockchain. The ones you should know about are :
  • ERC 20: These are standards used for all smart contracts on the Ethereum blockchain. It is something like Bitcoin. In terms of implementation, ERC20 standards can help to specify things like the total supply of tokens, balance remaining, allowance, transfer, approval, and relevant metadata for transactions.
  • ERC 621: It is similar to ERC20 but adds two super-powers to ERC20 standards - one is that of increasing the supply of tokens and the other is that of decreasing the supply of tokens. This also improves the creation process of the token as well as is prone to fewer errors and more control over the entire Tokenomics.
  • ERC 721: This standard describes how to create NFTs on the Ethereum blockchain. ERC721 tokens are all unique, whereas most tokens are fungible. NFTs created on ERC721 are on platforms like Decentraland, CryptoBeasties, Ethermon, and CryptoKitties.
  • ERC721X: For transferring tokens on an Ethereum blockchain, there are associated fees that one has to pay as server charges, which are known as Gas Fees. In the case of ERC721, there are huge gas fees associated with the creation of NFTs on a blockchain. ERC721X is an extension of ERC721 that is fully backward compatible, can represent even fungible classes such as shares of a company, as well as run on very fewer gas fees (1000X times lesser than ERC721 as they claim).
  • ERC 1155: ERC1155 combines the best of ERC20 and ERC721 as it is a single contract that can have a combination of fungible and nonfungible tokens included in the contract. This means you can send any number of items to one or multiple recipients in a blockchain instantly, a concept also known as Atomic Swaps. In other words, you can make a bunch of multiple NFTs together with this standard.
• Polygon: Polygon is a sidechain based on Ethereum with lower gas fees and significantly quicker transactions than the parent blockchain i.e. Ethereum. It was formerly known as the Matic network. It has a significant advantage as you don’t have to pay any gas fees to create and sell NFTs on a Polygon as compared to Ethereum where gas fees can range up to $200 also. However, it doesn’t support auctions and is a bit less secure than Ethereum.

• Flow NFT standard: Flow started with a unique NFT innovation known as CryptoKitties. CryptoKitties is an NFT based game that allows users to buy, breed, sell and trade digital cats. Flow was designed primarily for digital collectibles and games. It has a unique algorithm that allows the up-gradation of a smart contract and improves it over a while. Flow has a lot of other unique features such as multi-role architecture that can allow the network to scale to a lot of users with less server load, easier for developers to build upgradeable smart contracts and built-in logging support, etc. Flow is built on a smart contract language known as Cadence. Cadence is user-friendly and has a wider community of developers across the world now. Some major hits on Flow NFT standards are NBA TopShots, Dr. Seuss, Cryptokitties as well as UFC. Check https://www.onflow.org/
• Tezos NFT Standard: Tezos is a decentralized blockchain with an energy-efficient algorithm with low transaction fees for wider adoption. It has its cryptocurrency called Tez. Tezos can evolve and upgrade itself without breaking into a new blockchain (forking as done by bitcoin initially and caused a lot of instability in the blockchain world. Read here). Tezos has two standards: FA1.2 and FA2. FA2 token standard also known as TZIP-12 is the one that can support a range of fungible, nonfungible assets along with combinations. Some popular NFTs such as McLaren Racing NFTs, Red Bull Racing NFTs, PixelPotus etc. are on Tezos. Rarible, a multi-chain NFT marketplace also supports Tezos.

Quick Tutorial : How to buy an NFT and where to keep it?

Now , lets talk about how can you buy an NFT and what are the sources to explore stuff like Crypto-kitties, Punks, NBA Topshots, etc. The best place to explore NFTs are NFT marketplaces.

Step 1 : Select a Marketplace

The couple of marketplaces to go are :

OpenSea (**https://opensea.io/)

At the time of writing this article, OpenSea has hit a record of 5Bn $ in monthly sales (Refer → https://decrypt.co/91748/opensea-record-5b-ethereum-nft-market-swells). It is by doubt the largest marketplace to buy & sell NFTs. In Open-chain, NFTs are created on Ethereum, Polygon and Klaytn blockchains (as of writing this article). Check out the famous Bored ape NFT on OpenSea below:

Rarible (https://rarible.com/)

Rarible, is a multichain NFT marketplace with Ethereum, Flow and Tezos blockchain. Rarible has its own platform currency $RARI. Rarible used to award $RARI token to the users who buy and sell on the platform. However as of Jan 2022, the distribution of $RARI token for trading NFTs on platform was ceased as voted by their DAO community . Check here. One can find a huge collection of art, collectibles, collections, music, domains, DeFi, and Games on Raribles. Check out the Adidas Original collection on Rarible as below :

SuperRare (https://superrare.com/)

“Instagram meets Christies” is the slogan of SuperRare. It is a social community where you can follow influencers and buy NFTs using Ether , the native currency of Ethereum. Their collection is a bit premium as they started with handpicking only a select artists for their NFTs. An example of the NFT on SuperRare is below :

There are many other marketplaces , however in this article, we will go to OpenSea Marketplace.

Step 2 : Connect your metamask account.

Metamask, check metamask.io, is a crypto wallet to blockchain applications. It’s like a google-sign in equivalent of Web2 world. The steps to create a metamask wallet and connect it to OpenSea are as below :

• Go to metamask.io and click Download
• You will see a screen to install Metamask on Chrome. Click on the link

• This will install an extension of Metamask on Google chrome
• Now you will be directed to this page where it asks you to Get Started

• There will be these two options now - Import Wallet and Create a wallet. Click on Create a Wallet.

• Set up a password of your choice in the next screen and click Create.
• Very important → Please make sure you do watch this video and appreciate the concept of Secret Recovery Phrase. No matter what happen , never share this phrase with anyone, don’t store it online, or keep it somewhere vulnerable. Always write this phrase down in a notebook and store it physically (best option). After you go through the video, you will see this screen where you can “Click here to reveal your secret phrase” and write it down somewhere in exactly the same order as they appear . It would be number 1 phrase as “****”, number 2 phrase as “***”, all arranged in a single line. Make sure you follow the order while writing.

• After this , there will be a jumbled pattern of the secret word. Click on them one by one in the same order as they appeared in the previous screen.
• And the major step is done when this screen comes. Click on All done and go to your wallet.

• Now initially your account will show as 0 ETH as there is no fund right now. You need to click on Buy ETH to buy some Ether for transactions. Click on Buy .

• It will take you to next screen where you will have three options to buy ETH as shown below :

• Now if you already have another wallet, you can Directly Deposit Ether also , otherwise you should click on Buy ETH with Wyre or Transak depending on the mode of payment and whether your country allows you to buy. If you click Wyre, you will be taken to this screen.

• You can change the currency and add the amount that you want to add, depending on what you intend to do . However try to add a higher amount in one go as everytime you add , there is a network fee that is irrespective of the amount you add ($2.11 as shown above). You can see the amount of ETH associated with the amount on the above screen itself. Suppose you have added ETH via this , you will be redirected to your account where you can see the Ether, something like below .

• Hurray, you are ready to now transact on OpenSea / any other marketplace 😎
• In case , if you are from India, you might have to use a 3rd party service such as WazirX to get ETH in Metamask. Check out this article for more info→ https://aayushbhaskar.com/transfer-from-wazirx-to-metamask/

Step 3: Go to OpenSea, connect Metamask and buy NFTs

• Once you have setup your metamask, you can go to an NFT marketplace such as OpenSea. Hover your mouse on top right profile button and you can see a drop-down with profile popping up. Click on profile.

• The next step is to connect your Metamask to Open Sea. Click on Metamask (or any other wallet that you own)

• There will be a pop-up to connect Metamask with Open Sea. Click on Next and then Connect.
• Now, you will get an Unnamed profile created on Coinbase. Once you click on setting, another metamask popup will open up and you need to sign to proceed.

• Next screen will take you to your profile settings , where you can enter your username , bio , avatar etc.

• And here you go , you are ready to trade and buy on OpenSea.

Step 4 : Buy/Sell NFTs on OpenSea

This is pretty straight forward. However, one can learn some tips and tricks from here.

So, thats all about NFT’s in this article. I hope you are able to understand what NFT’s are , where to buy them and what’s the basic technology behind them. In subsequent articles, we will be exploring in depth about NFTs in metaverse.

About HackerVerse

At HackerVerse (http://hackerverse.io/), we are extremely passionate about creating opportunities for creators and engineers, starting from a virtual work environment, career progression to collaborative development opportunities. We are building a MetaVerse (a separate article on this soon), where every creator and engineer can explore multiple avenues, work in their virtual offices, create and build products via a decentralised Web3 platform super-powered by access pass NFTs.