Web3 & NFTs: NFTs Explained and Their Web3 Ecosystem Role

The entire blockchain industry, ecosystem and its participants owes Vitalik Buterin – the co-founder of Ethereum – a debt of gratitude for not only believing, but also proving that blockchain has non-financial use cases such as art, gaming and more, based around the blockchain principle of verifiable ownership. 

The ERC-721 standard on the Ethereum blockchain was released in 2018 and brought Non-Fungible Tokens to the attention of the blockchain community, before they exploded in popularity even for mainstream participants throughout 2020 and 2021.

NFTs are unique tokens that cannot be replaced by another token of the same type. Each ERC-721 token has a unique identifier, called a token ID, which cannot be changed. This makes ERC-721 tokens ideal for representing digital assets that have unique properties, such as collectibles, art, and in-game items.

The ERC-721 standard defines a set of functions that developers can implement in their smart contracts to create, transfer, and manage NFTs. These functions include:

– mint(): This function is used to create a new NFT.

– transfer(): This function is used to transfer an NFT from one address to another.

– approve(): This function is used to allow another address to transfer an NFT on behalf of the owner.

– getOwner(): This function is used to get the address of the owner of an NFT.

– totalSupply(): This function is used to get the total number of NFTs that have been minted.

The ERC-721 standard has been widely adopted by developers, and there are now a number of popular NFT projects that use this standard. Some of the most well-known ERC-721 projects include CryptoKitties, NBA Top Shot, and Axie Infinity.

There are many different standards for NFTs now, including on the Ethereum blockchain and many other layer 1 or layer 2 blockchains. Popular blockchains for NFTs include Solana and Polygon. 

The purpose of NFTs revolves around the concept of ownership. Money held in a bank may not actually belong to you – it may not even exist. But an NFT held in your wallet is provably, verifiably owned by you. 

NFTs, much like their counterparts Fungible Tokens (such as 1 Bitcoin BTC or 1 ETH) aid the objective of decentralised finance through transparency, security and trustless, peer to peer transactions for the transfer of ownership without middlemen. 

When an NFT is created, it is assigned a unique identifier and metadata, which is information about the NFT, such as its creator, the date it was created, and the price it was sold for. This information is stored on the blockchain, and it cannot be changed or deleted.

When someone buys an NFT, they are essentially buying the ownership of the unique identifier and metadata. This means that they own the record of the NFT on the blockchain, and they can prove that they own it. However, they do not necessarily own the underlying digital asset that the NFT represents.

For example, if you buy an NFT of a digital artwork, you own the unique identifier and metadata for that artwork. This means that you can prove that you own the artwork, and you can sell it to someone else. 

However, you do not necessarily own the copyright to the artwork. The copyright to the artwork is still owned by the artist who created it.

Fungible, in the simplest sense, means it can be broken down into smaller parts and each are exchangeable, the same way you could give a friend a different ten dollar note after borrowing one from them. These ten dollars could also be broken down into 1000 cents, because a dollar is a fungible currency or token, the same way a Bitcoin is.

A non-fungible token, then, is unique and represents a 1:1 value ratio with itself. 

There was a time the word “blockchain” simply referred to distributed ledger technologies and the currencies that lived within them, but as the space has evolved to include NFTs, tokens, metaverses and more, an umbrella term: web3, has arisen.

NFTs, thanks to their ownership-bestowing powers, are an increasingly important part of web3.

Web3 is the next iteration of the internet, and all about enabling decentralised finance through the innovative power of blockchain technology. This empowers individuals to have more control over their finances through the true and verifiable ownership of their assets. 

It is also more secure and privacy focused, giving users more control over their data, too. Think less “log in with Facebook” and more “connect wallet.” 

NFTs, just like blockchains, are likely to become even more popular in future as the mainstream begin to accept them as a viable financial system. 

The financial and – thanks to NFTs – non-financial use cases of blockchain technology are transformative. Kinesis uses the blockchain to tokenize real-world precious metal assets gold and silver, taking the pain out of investing in physical metals.