There has been a lot of press about NFTs recently and some people think that an NFT is just an NFT and if you buy one you will make a profit. There are lots of different types of NFT though and some have more worth/value than others.
All NFTs have the same basic structure. They are a smart contract on the Ethereum blockchain and they can be assigned to a wallet. The only way to move it is to assign it to another wallet.
Decentralized finance is an area that is taking off at the moment. The idea is that it builds crypto banks and exchanges in a decentralized manner. That is ones that are simply smart contracts living on the internet as opposed to companies based in countries with legal implications. These produced the first popular NFTs in the form of tokens that in exchange for liquidity gave you some discount or advantage.
Then there is the whole SushiSwap thing which I have never really got my head round.
This is my area of interest and the area that really hit the headlines recently. People are saying that NFT are a new form of art when what they are is a new form of buying and selling art. In the old days, you sold a picture and that was all you saw of the income from that picture. In the NFT art world, smart contracts have artist royalties built in, so each resale trickles a few % back to the original artist. Some of the NFTs have the actual artwork “built in” while some are essentially simple receipts saying you paid someone for something on this date.
When I was a kid I got through a lot of bubble gum collecting trading cards for my favourite films. then when I grew up I discovered the cult of the vinyl toy. Both these things are collectibles. NBA has something called Top Shots which is the modern hi-tech equivalent of trading cards. You buy packs of “moments” which are little video clips and some are rarer/worth more than others. It is worth noting that Top Shots is running on its own blockchain which is controlled by NBA. This means you can only buy and sell on their markerplace.
The you get things like CryptoPunks and CryptoKitties. They are just things that look cool and fun to have in your collection. You can’t really do anything with them apart from buy and sell them.
Some people also saw the invention of smart contracts as a way to write games the ran decentrally on the web. A lot of these were collectible card games like Magic: The Gathering and Yu-Gi-Oh. You buy packs of cards and fight against other players.
Virtual Real Estate
The final area is 3D virtual worlds like CryptoVoxels and Decentraland. I tend to label this area “Third Life” as it feels a lot like an extension of the old “second Life” game. You buy a plot of land, build a virtual house and populate it virtual nik-naks that people have made and sold. That’s it.
So there you have it, seceral distinct use cases for NFTs. The only problem with all these things is that (in the short term at least) their success is pushing the price of Ethereum up and that is in turn pushing up Gas fees. This means it is harder to actually do anything with these NFTs. It now costs nearlt $100 to mint an artwork and up to $1000 to do any De-Fi transactions.
There other blockchains out there such as Wax and Neo which do smart contracts. They don’t have the momentum though to overtake Ethereum.