What are Non-Fungible Tokens (NFTs)?

The explosive growth of NFTs (Non-Fungible Tokens) in 2020 - 2021 shook the mainstream and anyone from the outside looking into the Web3/Crypto world. However, the NFT standard was developed quite early on in 2018 with the implementation of the EIP-721 standard. Contrast to how 1₿ or 1Ξ (1 bitcoin or 1 ether) is fungible, which in simple term means that your 1Ξ token is the same as my 1Ξ token. It can be traded anywhere and to whomever and the value stays the same.

Non-fungible tokens however, is a standard allowing a token with unique characteristics to be verified on-chain to confirm its validity. In 2018 the most popular thing to do was to own and breed CryptoKitties, utilising the ERC-721 type standard for each and every CryptoKitty that exists; allowing everyone to differentiate and categorise each cats into its own group and properties.

The ERC-721 standard is broad enough that any implementation that requires provenance should be non-fungible; ownership verification or validity of ownership to be proven and shown on-chain. Popular implementation of ERC-721 also includes; music, digital art, writings. You get the idea, anything that requires the item to be unique can and should be created as ERC-721. Since then however there is a new standard implemented under EIP-1155 that helps optimise the way new tokens are created. ERC-1155 is now as popular as ERC-721 in terms of deployment of NFTs as it allows the creation of multiple non-fungible and fungible tokens within one single smart contract, allowing for more versatility.

With the technicalities out of the way, we can now tackle the topic of why NFTs have suddenly become popular in recent years? In my eyes, it purely comes down to the spread of meme and culture; meme in this case refers to how behavioral identity or certain cultural signaling are spread across from one group to another. It is also the expressive nature of the NFT scene and how it attract individuals who want to represent their identity in a new form to their peers that supercharged the adoption of NFT to the masses.

If social media and Web2 allowed for a new wave of user-generated content to flourish, NFTs and Web3 offer a more streamlined interaction and engagement between creators and its userbase. On top of allowing for a more global penetration of access to a wide variety of creators, it simplifies the pooling of capital for new and upcoming creators. With crypto assets, it is much easier for creators to sustain themselves financially by listing their NFTs on an open marketplace unrestricted (for the most part) from regional red tapes. Contrast to how creators on Web2 platforms are limited in how they can monetise their work and brand.

But as you may have seen or heard, NFTs are not just for creators looking to connect with their followers. It is also a fertile ground filled with new opportunities for new communities to bloom. New communities form everyday behind interesting projects looking to connect with each other based upon one or a few common interests.

Different type of NFTs

As I briefly listed above, there are various forms of NFT that could be created. The most successful are generally backed by a dedicated team where the project could have a clear roadmap and trajectory of where they would like to go. Others may take a more grassroot approach where the community rally behind a common interest and understanding of what the goal could be.

1/1 NFTs

As the name implies, 1 out of 1 NFT refers to a piece of work created by an artist and only 1 exists on the blockchain. The provenance matters most in this case; the artist who minted the piece, which platform it was minted on and when. You are essentially providing financial support to the artist by purchasing the piece. There are multiple platforms that facilitate buying 1/1 pieces from artists; this will depend greatly on which blockchain ecosystem your artist(s) decides to advertise their work on. Each ecosystem will have a different marketplace and accompanying tools and resources.

Collection based randomly generated NFTs (PFP NFTs)

PFP-based NFTs generally are produced within one large collection. A project team will determine the total amount of items within that particular collection; this may be based on the projected capital required to carry out their team’s roadmap or based on other factors such as: team credibility, market-rate for other PFP NFTs, TAM (Total Addressable Market) for their userbase, and team’s ethos.

PFP NFTs are a collection of randomly generated art pieces that is created at the time of minting on the blockchain. The act of minting is the interaction with the smart contract where you as a purchaser would pay for the art piece and the contract would randomly generate the NFT (or sometimes assign) an asset number for the NFT that would be yours.

Creating PFP-based NFTs generally require a full team to pull off as they require a variety of skills to carry out the project’s goals. Below are some factors that would need to be considered:

Art assets - generally broken down into different aspects of what the art required. If you refer to the image below, you can see there are several categories of asset types to be considered. Apart from deciding the total maximum number of items in the collection, the team will need to decide: variety of asset types, and how many different base types, how the breakdown between common, uncommon, rare, or unique should be.

Front-end UI Developers - This includes the landing page for the website for which the project description, roadmap, about and team breakdown would normally appear. Some teams may also include a more interactive website that allows existing NFT owners to interact with different aspects of the project such as gamification or social aspects, which requires back-end devs to be involved in most cases.

Back-end Developers - Devs will primarily be involved in the creation of the smart contract(s) to accommodate the different requirements of the team. This includes communicating with the artist(s) regarding the breakdown of art assets and how the programmatic breakdown of rarity, ranking, asset types should be. If the project also includes further utility that incorporates aspects of DeFi, then back-end devs will also be required to create other smart contracts to support this. It is also important for back-end devs and front-end devs to coordinate and ensure that gas consumption for minting is properly addressed on the front-end and on the smart contract(s).

Marketing - With how much content is produced on the internet today, it is nonsensical to not have a marketing team undertake advertisement efforts to ensure that the project is being seen by as many eyes as possible. Other avenues could be reaching out to existing projects for collaboration to harness a more credible following.

Social Media / Community Management - It is important to ensure that direct communication to userbase is maintained throughout the project lifetime. A popular method of community management recruitment is to encourage community members to apply for a moderator or administrative role to assist in the relaying of information between team and community.

Advisory - This role is generally reserved to individuals already established within the industry that would assist with the growth of the project.

PFP Rarity / Ranking / Properties assignment

It is important to note that NFTs act as a wrapper container that holds a few pieces of information within; provenance, art assets and URL for where this information is stored are the most important in this case.

NFT properties which are randomly generated On-Chain cost more gas for computation as all the calculations are done on the blockchain itself requiring more hashpower to complete. To off-set this cost and make their project seem more attractive to potential minters some project teams may decide to generate this calculation off-chain which means at the time of minting the gas computation required on-chain is only the allocation of NFT number towards each minter.

Once the off-chain generation is completed, the NFT assets are then updated to properly reflect what each NFT art should look like and what properties it contains by updating the URL within the NFT itself. This process is now the norm and the main reason why NFTs remain unrevealed until all items are sold off or until the team decides to reveal the art. See this famous exploit that occurred to Meebits.

Ensuring that NFT properties are secured properly is paramount to avoid bad actors from exploiting the NFT collection depriving the core supporters of fair distribution. I strongly believe that on-chain generation and store of metadata is preferred, however if that is not possible or if the project team decides to forgo this path, at the very least the metadata for the NFT should be stored in a decentralised manner. Such an option is possible with IPFS or Arweave.

Each NFT piece will contain a variety of properties which differentiates itself from one another. Depending on how often those properties are generated, each NFT may be ranked differently and that could contribute to the overall pricing of the piece. NFT collectors may decide to purchase a more rare piece by sorting through few select traits. There are resources you can use to assist with this activity such as utilising rarity.tools page or accessing the Rarity Sniper discord server.

Perceived Value / Utility

Majority of people involved within the NFT space are generally looking to make money by investing in certain NFT items hoping for its value to increase. Not too dissimilar to holding certain crypto assets hoping for its price to pump. If native crypto assets / tokens are usually supported by strong fundamentals such as robust protocol characteristics e.g. multi-client approach, trustlessness, or high TPS; then NFTs are supported by what the perceived values may bring or what utilities they may provide to its owners.

It is important for an NFT community to convince its current holders that there are benefits in keeping their NFTs long-term.

One way is to create an engaging community that acts as an organic marketing approach to potential buyers outside of its core supporters circle. If a community is welcoming and provides a safe space for holders to interact with like-minded people, potential buyers may venture out on social media preaching to their peers how good the community is.

Secondly, creating gamification or layers of new ways for current holders to interact with their NFTs can help maintain a healthy level of total owner count. By allowing current NFT holders to interact with certain functions within the community, by proving their ownership of the NFT prior to being allowed access, creates a demand for the collection and purports that there are additional benefits in purchasing certain NFTs. Popular implementation includes: browser-based games accessible after wallet verification with leaderboard prizes, team-led events hosted IRL or virtually on select metaverse platforms such as Decentraland, CryptoVoxels, or Sandbox. Or winning prizes for owners to be randomly selected.

The approaches mentioned above are common in most NFT projects that are focused on creating a specific brand image and community. However, there are other projects that aim to delve deeper into the gaming aspect of Web3 and formulate a collection geared specifically to satisfy that niche. Axie Infinity became the template for other NFT collections after successfully helping people survive the COVID-19 pandemic by giving opportunity for people to play-to-earn. Some play-to earn projects also employ DeFi characteristics to assist in keeping the money and value churning within their NFT ecosystem.

One segment of the NFT market that I know will eventually flourish focuses on the RPG aspect; Crypto Raiders, Sipherian Surge and Avarik Saga Universe are some examples which promises its owner their NFTs are the avatar they would end up playing with when the game is produced and released.

In the end, these utilities are the promise for return on investment for NFT owners that invest in the team / project at the early stage. Setting aside hard-core believers or core supporters of a project, the utilities provided by the team helps maintain a stable floor price for the collection and a chance for early backers to sell at a profit when the demands for the NFT collection rises. On top of that, a stable floor price creates a perception that the team is doing something the community agrees on, and the trust the community inevitably gives the project team by holding the NFT asset(s).

Resources / Tools

There are now tools and resources related to Web3 that solely rely on having the end-user connect their wallet address upon accessing their platform. As illustrated in the tweet below, there has been a strong effort in standardising and simplifying the Web3 style login. See Login.xyz if you are interested in learning more.

NFTs can also be used to unlock certain features on platforms that are reserved for higher tier end-users; this implementation has reached a new level of adoption.

One such example is the platform WGMI.IO that implemented an early premium supporter NFT collection, which allows holders of its Premium Membership collection to access their premium functions. New premium members will have to pay monthly subscription fees to unlock their premium features.

Another example is FlavaTools who implemented to assist in perusing rarity details of NFT collections listed on the popular platform OpenSea. Their NFT collection aids in unlocking their features when accessing the OpenSea platform.

Metaverse

Metaverse is not a new concept and has been around for a while. In the 90s, we have been treated with The Palace; graphical chat rooms where each server (palace) contains many rooms that you can enter into and interact with other users. There are avatars that you can use to express your individuality, there are also trading of assets so user generated content was somewhat supported.

The new wave of metaverse craze is directly linked to the decentralisation of the underlying technology supporting this movement. It is all about being able to bring YOUR data to any metaverse platform of your choosing instead of being forced to be locked into a certain platform. One of the more interesting teams developing the metaverse is Nifty Island.

There is still not a concrete way to describe what metaverse is all about succinctly, however the birth of new ways of interacting socially and culturally especially in blockchain will pave the way to defining what this metaverse is all about — otherwise it could also just be a dead buzzword in a few years.

Collections & Project types

If you try and view and peruse active collections in OpenSea you can see that there are so many different types of NFT collections available for purchase. It is quite difficult to discern what kind of project they are just from its collection page without diving a bit deeper into their roadmap/whitepaper and website information.

Copycat Collections

This is the easiest to identify, the images are generally very similar to the original collection. However, it could also include new traits not available previously. There are plenty of examples of this copycat phenomena:

the original CryptoPunk meets Fast Food Punks or CryptoPhunks

the original Bored Ape Yacht Club (BAYC) meets PAYC or PHAYC

the original Cool Cats meets Uncool Cats

For direct duplicates or flipped images, the issue is the re-use of existing property for economical gain. Derivatives like Fast Food Punks and Uncool Cats are still copycats in my eye because they are not introducing anything new to the industry, and only riding on the success of the original collection.

Cash Grab / Rugs Collections

Pure cash grab collections can be hard to identify, bad actors could easily create convincing front pages for their attempt to subvert people’s expectations and gain people’s trust. However, if something is too good to be true it is probably a rug — try and remember the old ICO craze days from 2017-2018. Rug collection will take your money and run away with it without the team delivering any of the promised roadmaps or goals previously outlined.

Community-led Collections

The easiest example I can give right now is the Loot ecosystem, borne out of a tweet by Dom Hofmann announcing the release of a new collection redeemable by anyone. It quickly turned into a new community trying to steer the newly found objective into reality. Feel free to explore the ecosystem by going through lootproject.com

Artist specific Collections

One of the ecosystems that I’ve seen flourish is the Lost Poet collection by Murat Pak in collaboration with Manifold. Pak announced the idea of this journey of NFT collections and created an ecosystem where supply and demand of the NFTs are tied to the gamification aspect and utility of itself. Token, burn mechanism, random raffle winner and surprise drops are included as part of the project’s overall rise to fame. Pak managed to sell out blank pages within 75 minutes of its initial drop.

NFT Launch methods

To get involved in a particular project, it is critical that you get to know their plan on how they intend to distribute their NFTs. There are a few ways this can go down, be it well intended or not it depends on the end result during launch and how the community reacts to the launch process itself.

Free + gas

This launch type is generally intended for the purpose of allowing as many people to participate and provide a wide distribution of the NFTs as possible. As wholesome as that intention would be, it is still open to exploitation from big whales if the contract allows the minting of multiple NFTs within one transaction. This is why nowadays minting contracts are generally limited to 20 per transaction or even lower, such as 2 items per wallet.

Some other NFT contracts may also allow for free + gas minting for the first XXX amount of NFTs within that collection for example to entice minters, and to start the volume going. There are plenty of resources that crawl for minting information and alert NFT collectors or potential minters by how rapid the volume of minting for a particular collection. Hence, the reason why plenty collection allows for the free minting of a few hundred and starts charging for the rest.

Raffle & off-chain bidding

This type of minting aims to minimise the gas cost to each minter by providing a way to register for the minting process beforehand. Mekaverse aimed to achieve this goal by restricting each person to 1 wallet address and a social media account to reduce the amount of exploit — however, this did not end well.

Whitelist & Pre-sale

Similar to how early bird pricing works for say tickets, whitelist price or pre-sale price minting encourages the community to be as early as possible to join the NFT project. This, combined with the elaborate ways whitelisting requirements are set up provides an organic way for the project to market itself on social media. Though this type of whitelisting process is also plagued with ways to be exploited, see here for an example. The initial intention of allowing for pre-sale minting is to provide a limited time for early supporters to mint the NFT while avoiding gas wars by minting at a time that is more comfortable and gas efficient to minimise total cost.

Dutch-auction sale

Similar to the intention of pre-sale minting, Dutch auction sale allows for minters to purchase NFT at a price that is most compelling to each person. By providing a starting mint price that periodically declines until it reaches its limit, it creates a staggering effect in minting volume at which point it generally becomes a gas war again if the collection has not been fully minted out when it reaches the lowest minting price.

In order for a collection to survive long-term, it is best to have as high of a number of NFT owners as possible holding each NFT; this also avoids the select few holders from manipulating or controlling the NFT floor price and the sentiment for the collection as a whole.

If you are interested in further reading regarding NFT launching methods, go read Hasu & Anish from Paradigm write-up on what a “fair” distribution of NFTs may look like.

Pushbacks on NFT

Carbon footprint - Energy Consumption

The biggest narrative surrounding the pushback against NFT is definitely the energy consumption issue; you can read up on Memo Akten’s take on Ethereum’s energy consumption further.

Vitalik Buterin has been talking about the move to Proof of Stake since late 2016. It was always the plan to move to a better and more energy-efficient system, though it has taken a while for this to be realised, it has never been neglected. The new consensus mechanism was launched in December 2020 with the expected The Merge to occur sometime in 2022. The specs have been finalised and have been tested with multiple testnets with the latest being the Kiln testnet.

Right-click save - Ownership

The easiest solution to debating about NFTs always been

I CoUld JuST rIgHt cLiKC sAVe tHiS JPEG

for people who are against the idea of NFT for whatever reason and continue to utilise traditional social media platforms, this is their best argument. While enthusiast and tech savvy people are venturing into Web3 and its new territories, it is sometimes hard for others to accept or comprehend the unknown. It is never about keeping everyone else from enjoying the art associated with the NFT, it is about ownership in this new ecosystem. Take a look at Rac’s tweet.

Ethereum is the new playground for where culture and meme are being created. Setting aside the DeFi and its associated weirdness (shoutout to degenspartan for keeping my twitter timeline weird all the time). The cultural aspect of Ethereum and NFTs are here to stay. Metaverse platforms keep building and its sale of digital lands are not stopping, traditional companies everyday are investing their time into either researching on how to get a piece of the pie or jumping on-board with the new digital scarcity trend.

Anyone can enjoy all the NFT art available online, no one is forcing you to buy the NFT however if you are willing to support your favourite artist or team then the best way to do so is by owning the NFT and directly contributing to the artist’s wellbeing.

The ability of anyone to save an NFT image and use it as a profile picture on traditional social media is never the point because we are trying to break away from those platforms. AAVE’s new social media platform Lens Protocol aims to assist with the shift towards a better social media platform where data is owned by the person and not the platform, Decentralised Identifiers will also play a role in the new social Web3 scene in helping users protect and share data as they see fit. Checkout this BANKLESS episode on what Web3 Social could look like in the future.

Copyrights & Intellectual Property

Currently, most copyright protection is only covering creative works that are produced in tangible form, which does not include the minting of an artwork on a blockchain ecosystem. The digital art piece created by the artist itself might be protected by copyright laws however the minted version on the blockchain currently is not offered the same protection.

Furthermore, due to the nature of NFT assets mainly comprising of its unique ID and its metadata pointing to the location of where the art piece is stored, legally speaking there is no protection warranted to owners of NFTs in the traditional world. As the owner of the art piece in the eyes of the court would still fall under the creator in most cases.

This is something that the legal system and the advancement of Web3 related entities will have to deal with. Just like how we are still struggling with game streaming on Twitch or mixing and reuse of music on TikTok, nothing is ever black and white when it comes to technology.

Useful links (DYOR)

Marketplaces

1. https://opensea.io/ - ETH L1 - Polygon - Klatyn - (Potentially Tezos soon)

2. https://rarible.com/ - ETH L1

3. https://foundation.app/ - ETH L1

4. https://www.mintbase.io/market - ETH L1 - NEAR

5. https://superrare.com/ - ETH L1

6. https://knownorigin.io/ - ETH L1

7. https://tokentrove.com/ - Arbitrum (L2)

8. https://marketplace.treasure.lol/inventory - Arbitrum (L2)

9. https://www.binance.com/en/nft/home - BSC , ETH L1

10. https://shoyunft.com - ETH L1 - Sushiswap NFT platform

11. https://hicetnunc.art/ - XTZ

12. https://www.henext.xyz/ - XTZ

13. https://nftbiker.xyz/ - XTZ NFT Tools

14. https://dartroom.xyz/overview - ALGO

15. https://solanart.io/ - SOL

    NFT Resources

16. https://www.nfttrader.io/trade - NFT Trading (Multi-assets supported)

17. https://sudoswap.xyz/#/create - NFT Trading

18. https://swap.kiwi/ - NFT Trading

19. https://vaportrade.net - BETA - NFT Trading

20. https://nft20.io/ - NFT Pools and tokenisation

21. https://nftx.io/ - NFT Pools and tokenisation

22. https://nftgo.io/ - NFT Market Dashboard

23. https://moby.gg/ - NFT Market Dashboard

24. https://niftygateway.com/ - NFT Market Dashboard

25. https://www.cryptoscores.io/ - NFT Score platform

26. https://icy.tools/ - NFT Score platform

27. https://www.flips.finance/ - NFT Score Platform

28. https://wgmi.io/ - NFT Score platform

29. https://www.unifty.com/ - NFT Gallery exhibition

30. https://photocentra.com/ - Blockchain stock photo platform

31. https://raritysniffer.com/collections - Check Rarity

32. https://rarity.tools/ - Check Rarity

33. https://app.traitsniper.com/ - Check Rarity

34. https://www.renft.io/ - NFT Lend & Borrow

35. https://nftfi.com/ - NFT Lend & Borrow

36. https://nonfungible.com/ - NFT Market Analysis

37. https://nftcharts.io/ - NFT Market Analysis

38. https://nftbank.ai/portfolio - NFT Portfolio Dashboard Metaverse

39. https://play.decentraland.org/ - Decentraland

40. https://www.sandbox.game/en/ - Sandbox

41. https://www.cryptovoxels.com/play - CryptoVoxels

    Governance & DAO

42. https://snapshot.org/#/ - DAO Voting & Community Governance

43. https://gnosis-safe.io/ - Multi-sig vaults

44. https://fractional.art/? - NFT Ownership tokenisation

45. https://deepdao.io/#/deepdao/dashboard - DAO overview Gas Estimator

46. https://etherchain.org/tools/gasnow

47. https://www.blocknative.com/gas-estimator

48. https://etherscan.io/gastracker

    Defi & Asset Dashboard

49. https://zapper.fi/ - Zapper dashboard

50. https://app.zerion.io/ - Zerion dashboard

51. https://defi.instadapp.io/ - Instadapps dashboard

52. https://l2fees.info/ - Fee revenue

53. https://l2beat.com/ - Layer 2 Data & TVL count

    Bridges

54. https://app.hop.exchange/

55. https://cbridge.celer.network/#/

56. https://synapseprotocol.com/

57. https://li.finance/swap

58. https://www.xpollinate.io/

59. https://bridge.umbria.network/

60. https://app.multichain.org/

    ETH EIP1559

61. https://watchtheburn.com/

62. https://ultrasound.money/

    Other platforms

63. https://ethtps.info/ - ETH TPS visualisation

64. https://txstreet.com/ - Transaction illustration

65. https://app.tornado.cash/ - Clean your crypto

66. https://defiprime.com/ethereum - DeFi tools list

67. https://status.im/ - Blockchain messenger

68. https://gitcoin.co/ - Quadratic funding / Public good funding

69. https://123eth.org/ - ETH and BTC link compilation (edited)

70. https://defrag.fi/ Collateralize NFTs

71. https://revoke.cash/ - Contract revocation

72. https://etherscan.io/tokenapprovalchecker - Contract revocation

73. https://polymarket.com - Betting platform