A breakdown of Ethereum-based collectibles.
What is an NFT?
An NFT, or non-fungible token, is a type of digital asset that is unique and cannot be replicated. NFTs are typically stored on a blockchain, which allows for the asset to be verified as authentic and for the ownership and transfer of the asset to be recorded and tracked. The actual content or data of the NFT can be stored off-chain, but the ownership and authenticity of the NFT is verified on-chain through the use of a unique token or identifier.
Tokens become non-fungible simply because their contract gives each new token a unique ID. Fungible tokens, on the other hand, share the same ID.
Creating an NFT
Minting an NFT typically involves deploying a smart contract to the blockchain, which acts as a template for creating unique tokens. The smart contract defines the rules and conditions for minting the tokens, such as the total supply, the token's metadata, and any other information.
A smart contract is a computer program that is stored on the blockchain and can automatically execute the terms of a contract when certain conditions are met. In the case of NFTs, a smart contract is used to mint, transfer, and burn tokens.
Using someone else's smart contract to mint an NFT, such as a marketplace, can be more cost-effective as it eliminates the need to deploy a new contract. However, using someone else's contract also means that you will have less control over your assets and may not be able to customize them to your needs fully.
ERC-721 is one example of a smart contract standard for NFTs on the Ethereum blockchain. It defines a set of rules for creating and managing non-fungible tokens, making it easy for developers to create and manage their own NFTs.
Tokens that are created using a specific smart contract are bound by the rules and conditions defined in that contract. Each smart contract defines its own set of instructions for minting, transferring, and burning tokens, and these instructions can vary from contract to contract.
This means that tokens minted using different smart contracts may not be compatible with one another and may have different properties and behaviors. For example, one contract may have a feature that allows tokens to earn royalties, while another contract may not. As a result, tokens minted using the first contract would have that feature, while tokens minted using the second contract would not.
NFT Asset Storage
Token assets, such as images, metadata, videos, etc. Can be stored with different levels of permanence. If your image and/or metadata are only hosted in one place, they could become inaccessible if that place goes down. Because of this, distributed file storage is a good way to keep things around. If you are uploading and minting your NFT through a platform, they will typically make this choice for you.
If you aren't the one who owns the hosting account where your assets are stored, you may have limited control of them. This is great for convenience and potentially cost, but if you insist on complete ownership, it's best to look into other options.
When creating NFTs, the actual content or data of the NFT, such as images, videos, and audio files, are often stored off-chain. This is done to prevent the blockchain from becoming bogged down with large files, as every node on the blockchain would need to store a copy of those files.
Instead, the NFT token on the blockchain contains a link or reference to the off-chain asset, such as a URL or IPFS hash. This link points to the location of the off-chain asset, where it can be accessed and viewed. Along with the link, metadata is also stored on-chain, which contains information about the NFT, such as the title, description, artist, and other relevant details.
The way the off-chain assets and metadata are stored can vary between different NFT platforms and protocols. But in general, the goal is to keep the blockchain lightweight by storing large files and media off-chain while still providing a way to verify the authenticity and ownership of the NFT on-chain.
Types of Off-Chain Storage
The storage method used for off-chain assets also affects how reliably and easily they can be found and accessed by others. The location protocols used to store the assets, such as IPFS or centralized servers, will impact the accessibility of your assets in the long term.
Decentralized storage solutions, like IPFS, provide a more permanent and decentralized way to store and access off-chain assets, making it more reliable and less dependent on a single point of failure. Additionally, decentralized storage solutions can be accessed by many different browsers and clients, making it easier for others to find and access your assets.
On the other hand, centralized servers can be more vulnerable to failures or outages, and the accessibility of the assets will depend on the uptime of the hosting providers.
As a creator, it is important to consider the long-term accessibility of your assets when choosing a storage method and location protocol. If you are using a platform, you should check their documentation or support team about the location protocol used for your assets and how it affects their accessibility in the future.
Types of NFTs
There are many different categories of NFTs, but some common ones include:
Digital art: This category includes digital paintings, illustrations, animations, and other forms of digital art. These NFTs can be used to represent ownership of a digital piece of art and can be used for online galleries and art marketplaces.
Collectibles: This category includes virtual trading cards, in-game items, and other digital collectibles. These NFTs can be used to represent ownership of a unique virtual item and can be used for online marketplaces and gaming platforms.
Virtual Real Estate: This category includes virtual land, buildings, and other virtual assets that can be used in online virtual worlds and gaming platforms. These NFTs can be used to represent ownership of a virtual property.
Music: This category includes digital music files and digital concert tickets that can be used for online music platforms. These NFTs can be used to represent ownership of a digital music file and can be used for online music marketplaces.
Identity and Social Media: This category includes digital identities and social media profiles. These NFTs can be used to represent ownership of a digital identity and can be used for online social media platforms and marketplaces.
PFPs: A blend of several categories of NFTs, including digital art, collectibles, and identity. PFPs currently represent the most well-known type of NFTs. They are often high-dollar avatars that can be used for access to exclusive communities and are heading toward becoming the defacto avatar for upcoming metaverses such as The Otherside by Yuga Labs.
Video and Film: This category includes digital videos, movies, and film. These NFTs can be used to represent ownership of a digital video and can be used for online video marketplaces.
These are just some examples. There are many other categories and subcategories of NFTs that are emerging and being created constantly as the technology evolves and more use cases are discovered.
There’s a lot to follow. Skry is here to help.
We covered the basics, but there's a lot going on when it comes to NFT. In the future, there will be many tokenized asset classes beyond digital art. Being informed is key, so we’re building the tools to help you find the data about your tokens beyond “memeability.”
Skry is an NFT ratings & research platform. Our Insights Grade uses an automated algorithm to determine the technology, tokenomics, market, and community quality of an NFT collection.
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