What are NFTs? 🚀 (Non-Fungible Tokens!) - Beginner's Guide

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This youtubers been around a long time. I found her a while back when I started to dive into crypto. Very friendly from what I can tell and seems to know her stuff. Highly recommend!

đŸ‘ïžŽ︎ 1 đŸ‘€ïžŽ︎ u/occy3000 đŸ“…ïžŽ︎ Jul 02 2021 đŸ—«︎ replies
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Hello, I’m Crypto Casey. In this video we are going to talk about Non-Fungible Tokens, or NFT’s for short. We will discuss what NFT’s are, how they are created, how they are being used now, and how they can be used in the future. By the end of this video, you will understand the vast and varied potential of non-fungible tokens and why they will undoubtedly become pervasive in our modern day lives in the not so distant future. Awesome. So let’s learn all about Non-Fungible Tokens. Before discussing the specifics of non-fungible tokens and the underlying technology, there are three key concepts we must understand for the beauty of NFT’s to really sink in. Because my goal before the end of this video, is for you to have the same eureka, “oh my gosh this is gonna be huge,” experience that I had when really digging into this technology. So the three concepts we will visit briefly are subjective versus objective value, fungible versus non-fungible assets, and the definition of tokens. Nice. Concept 1: Subjective Versus Objective Value So, I think we all can pretty much agree that the air we breathe and having access to drinking water are inherently important. Air to breathe and water to drink have objective value for the most part, meaning someone’s belief, perception, or preferences don’t really add or take away from the overall importance or value attributed to air or water. So, subjective value is the idea that an item’s value to a person is dependent on that person’s beliefs, perceptions, or preferences. For example, let’s say I have a roundtrip airplane ticket to Iceland that costs $600 US dollars departing tomorrow and coming back a week from now. If you can’t drop everything you have to go tomorrow, or if you don’t have a passport, or if you are some deranged weirdo that has zero interest in going to Iceland, then the ticket is pretty much worthless to you. Now, assuming you can and want to hop on a plane to Icelandffffffffthree one tomorrow, if the ticket was for a middle seat, versus an aisle or window seat, that would probably have an affect on your perception of the ticket’s value. Some people prefer aisle seats, while other people prefer window seats, and unless you’re some deranged weirdo that would literally sit anywhere on a plane and zero feelings one way or another, even if it’s a middle seat, the location of the seat adds another subjective value layer to the ticket. So breaking down the subjective value layers of the airplane ticket to Iceland tomorrow, you’ve got the mere fact that it’s an airplane ticket, the airline, the destination, the dates of travel, and seat location. All of these factors make the airplane ticket an item with subjective value. Regardless of the $600 cost attributed to the ticket, everyone would place a different value on it due to the aforementioned factors. An even more obscure, in my opinion, and insane example of something with so much subjective value, that I can almost guarantee every single one of you that will ever watch this video would place 0 value on this item. Check it out. If you go to Ebay, do a search for a baseball card, filter by pre-1942, and sort by the highest price. You will come across some fresh hell madness like this: $300,000 for a 100 year old piece of printed paper, of some TY Cobb. Who is that? Honestly, I don’t want to look him up because, I’m worried, it might just cause me to want to buy his century old baseball card for an amount of money that could afford a decent sized house in most places around the United States. I don’t know about you guys, but for me watching baseball, watching paint dry, subjectively equal use and enjoyment of time. But I mean, 161 people are watching this card, suggesting there are at least 159 people willing to shell out $300,000 for a color printed piece of paper. And just for fun, if you do the search for baseball card without the pre-1942 filter you get this: Tom freakin’ Brady. 79 people potentially willing to shell out $1.8 million dollars for this particular colored piece of paper. But hey, at least this one is kinda like iridescent or has some holographic quality to it. Also, I can futs with some football. Football is watchable in my book. I don’t really like sports, but football a close second to hockey for me. So what is the subjective value of this $1.8 million dollar Tom Brady card for me: $0, yeah I don’t want that card or any sports card. No no, not for me. Does nothing for me. But, now we know that a market exists for these items with highly subjective value. So what is a market? The definition of a market is twofold. One, a market is a place where people can physically go, or digitally access, to basically buy, sell, exchange, or trade goods and/or services. So a market can be a physical place like a grocery store, the mall, or a car dealership, or it can be a virtual environment like Ebay, the Apple app store, or even a cryptocurrency exchange like Crypto.com or Coinbase. Two, the term market can be used to describe the existence of people who have a desire to buy, sell, exchange, or trade a specific type of product or service. So this use of the term market is more abstract to describe, for example, the housing market. Believe it or not, there is a collection of people out there that wish to buy and sell houses. You can also be more specific like the Chicago housing market, or even more specifically, the Chicago condo market. People also use the term to ask if a market exists, which simply means are there enough people out there who would want to buy, sell, exchange, or trade a particular good, service, information, or currency? For example, when creating a new good or service that doesn’t currently exist, sometimes people perform market testing, which is just seeing if there are people that would want to buy the good or service, how many people there are, how much they’re willing to spend, etcetera. Cool, so now that we’ve basically translated these deliberately complicated finance terms, subjective value and markets, into concepts we were already comfortable and familiar with, that being: different people are willing to spend different amounts of money on all kinds of different things they want to buy. Simple enough, right? Nice. Let’s learn something else we already know, but didn’t realize it. Concept 2: Fungible vs Non-Fungible Assets First and foremost: What is an asset? Asset is a fancy finance term that just means something useful or valuable. It can be something physical like gold, it can be something digital like bitcoin, it can be something abstract like expertise, it can be a financial instrument like a retirement plan, and it can be anything that helps you generate income, like a computer or cell phone, for example. Sweet. Next let’s tackle the difference between fungible assets and non-fungible assets. Fungibility describes an asset’s ability to be evenly swapped with another asset of the same type. So a fungible asset is something that is interchangeable. For example, a $100 dollar bill is fungible because, if I have a $100 dollar bill, and you also have a $100 dollar bill, we could interchange the bills, or I give you mine and you give me yours, and the value doesn’t change. Ethereum and bitcoin are both fungible assets as well. One whole bitcoin is no different from another one whole bitcoin. Same goes for ether. One ether is no different than another ether, as the value is equal. So a non-fungible asset is something that is not interchangeable and not divisible for the most part. For example, let’s say I have a pet dog, and you have a pet dog, and we swapped dogs. You can see how that transaction isn’t an equal swap of value. Even if we had the same exact type of dog and they looked the same, each of the dogs harbor their own unique personality, memories, and abilities. So examples of non-fungible assets are houses, used cars, and baseball cards, like we looked at early. You can see how these items can’t exactly be divided evenly and retain their value, like you can’t just buy half of a house, or 30% of a car, and 1/10th of a baseball card. And it’s important to note that there are semi-fungible assets as well. An example of a semi-fungible asset is an airplane ticket. Each ticket for the plane, although look and function the same, represents a unique seat on the plane, like the specific row and aisle, versus middle, versus window seat. A concert ticket is also a semi-fungible token, as it dictates which seat you will be in for the event, unless you’re one of reckless pit section junkies, paying for some ticket to potentially get trampled. Crazy people. Concept 3: Definition of Tokens A token is something physical or digital that can be exchanged for or represent a good, service, or other form of value or utility. In cryptocurrency and blockchain technology, tokens are representative of value like a stake, voting right, a toll, a currency, a store of value, it could represent ownership of something, or it could be multifunctional within an ecosystem. So know that the token doesn’t have value in and of itself, the value comes from the asset it represents. Like a gift card would be an example of a token. So the actual plastic card in and of itself isn’t valuable, but the card does represent value you can exchange for whatever terms are dictated by the gift card. And when we create a token that represents a good, a service, or any of the aforementioned forms of value, it’s called tokenization. Nice. So we’ve covered the three foundational concepts that will fortify your understanding of NFT’s: subjective value, non-fungibility, and tokens. Next, let’s talk about tokenization on blockchain technology. So, what is blockchain? The most plain and simple explanation of blockchain is that it’s records of data stored on a network of computers. And there are 3 pillars of blockchain that make it unique: Decentralization, Transparency, and Immutability. So let’s break down these 3 pillars. Pillar 1 - Decentralization: The word decentralization with regard to blockchain is twofold. One, it means that the data is recorded and stored on multiple devices in multiple locations around the world, as opposed to one central place. And two, decentralization also means that no one person, company, government, authority, or entity controls the data record and storage process. So instead of traditional centralized entities like the IRS, JP Morgan, or MIT recording, storing, managing, and controlling their data by following their own protocols, deciding which servers to use, where the servers are located, and using their own proprietary software and security systems to protect their data, blockchain allows for decentralized record keeping where data is recorded, stored, and managed on a network of computers with open source software around the world. Any changes to the blockchain protocol go through a consensus process that no one person or entity has control over. So that is the essence of the “decentralization” pillar. Pillar 2 -Transparency: The word transparency with regard to blockchain relates to the way in which transactions are recorded on a ledger that is available for everyone to see and that is saved on a network of computers around the world, making the data impossible to change or alter. The best way to see the value of transparency in data recording, storage, and management is by comparing these two scenarios: Currently, common citizens of the United States are not privy to where and how every tax dollar is spent by the United States government. We just have to take the government’s word for it. And even if the government had to show their records, it would be very easy for them to create, forge, or manipulate any data they chose to share with us, since they control their own data. Now you can see how that scenario is not transparent and not exactly trustworthy. So, let’s imagine if everyone in the United States had the ability to see a live, running ledger of where every single tax dollar was spent by the United States government at any moment in time. A scary thought right? Basically all US citizens could see a full disclosure of how our government is managing our money. And in this scenario, there is more trust and transparency, the 2nd pillar of blockchain technology. Pillar 3: Immutability - Immutability simply means that the data recorded and stored on the blockchain cannot be changed, forged, or altered. And this is achieved through cryptography and blockchain hashing processes. If you would like to listen to a more in depth video explaining what blockchain is and why it was developed, please check out my blockchain guide by clicking on this link. So, to summarize the 3 pillars of blockchain technology: Blockchain’s recording and storage protocols make it such that once new data is verified, it is unmodifiable, it’s distributed across a vast network of computers around the world so it’s hard to destroy, and no one person or entity controls the data or network, creating a transparent environment. Awesome. Now that you are familiar with some of blockchain’s important features, let’s talk about tokenization of digital assets on blockchain technology in the form of Non-Fungible Tokens. What is a non-fungible token or NFT? A non-fungible token is simply a representation of a unique digital asset that cannot be equally swapped or traded for another NFT of the same type. So non-fungible tokens can represent digital art, a ticket to an event, an in-game item, property in a virtual world, or even a real-world asset like a deed or title to actual land in the physical world. So pay attention because this is where the eureka moment will start to sneak up on you. Because you will see how blockchain adds unique properties to digital assets by giving people ownership, management permissions, and transferability on a decentralized, transparent, and immutable platform. Thinking back to our baseball card bit, currently in the game Fortnite, people can buy skins that change the way their players look, and what really blows my mind is these skins literally only change the way the digital character in the game looks I’m pretty sure; it doesn’t give the character any extra attributes or anything. Which is so strange to me. Back in the day when I played a lot of video games, when you earned, won, or bought something that changed the way your character looked, typically it also came with some abilities or powers or something that gave you an edge in the game. But now people are just spending money to change their characters clothes basically, just for vanity’s sake. A quote I always live by: vanity is insanity. Neither here nor there, anyway, if you buy a Fortnite skin and then want to turn around and sell it on Ebay or something like a baseball card, you’ll see how there’s a challenge with transferring that particular digital asset from one person to another. Well, not for long, because blockchain technology provides a coordination layer that will impart 6 key properties onto digital assets all predicated on immutability which are: Standardization, interoperability, tradeability, liquidity, scarcity, programmability, and authenticity. Before breaking down these key properties, let’s quickly take a look at some examples of NFT’s that currently exist to help wrap your head around the concept. We are going to Opensea.io, which is an NFT marketplace, or place where people can buy, sell, trade, and exchange non-fungible tokens. On Opensea.io, if you click on the browse button, then click the categories dropdown filter, you will see a list of different types of NFT’s like art, domain names, virtual worlds, trading cards, collectibles, sports, and utility. If you filter by art, you will see a collection of static images, as well as gif’s you can buy to own. If you filter by virtual worlds, you will see a collection of characters, digital properties you can own, accessories, and all kinds of things you can buy, own, and use in the virtual world similar to video games work now, except on a completed decentralized platform with it’s own peer-to-peer ecosystem. And if you go to trading cards, you see pretty much a similar situation of the baseball card madness, except digital, so much less risk of theft and no chance of it being destroyed by a fire or similar because you would literally need to take out an entire global network of computers to bring down the blockchain network, which would involve basically destroying the entire planet. In fact, domains or wallet names are also a type of NFT. If you tuned into my 100k subscriber special, you remember the ETH giveaway by Unstoppable domains. Unstoppable domains offers a solution to the long, complicated cryptocurrency addresses currently in use, by replacing them with an easy, human-readable name. An unstoppable domain also allows you to launch uncensorable websites. The domain is stored in your wallet, just like a cryptocurrency on the blockchain. So no one can move it around, put it up, or take it down except you. And last month they launched a feature that allows you to link your blockchain domain to your Twitter handle using Chainlink oracles. The Twitter handle shows up when you type the domain into a wallet so you know you’re about to send money to the right person. So if you would like your own unique wallet name or domain NFT, scroll down to the description area below and click on the Unstoppable domains link to access the correct, official site. Awesome. So now, let’s breakdown the 6 key properties blockchain lends to digital assets and their implications for future use - Standardization Traditional digital assets currently don’t have a single foundation they can all exist on. For example, electronic tickets reside on ticket master’s platform, while fortnite skins reside on fortnite’s platform, and so you have all of these separate places where digital assets exist. So, by tokenizing digital assets on the blockchain, users can create non-fungible tokens with set standards and uniformity. And you can think of these standards like jpeg versus png formats for images, or another example of a standard is the http protocol computers use to communicate with each other when we access websites on the internet. So blockchain allows for standardization in the creation of NFT’s, which ensures all of the aspects of NFT’s like ownership, transfers, access, and control are unified on one common system. To better understand this, image you buy some virtual property in Decentraland and then you buy a digital house on OpenSea.io as well as some digital artwork. These three separate non-fungible tokens on one unified network can interoperate with each other, allowing you to put the house on the property you bought and put the painting inside the house. And if Fortnite adopts the technology, you would then theoretically be able to put your fancy fortnite skin in the closet of your digital house, or you can even leave it on the floor if you’re a dirty slob. Lol So you can see how these standards allow developers to build applications using the same code, essentially to build everything on one decentralized platform, which the most common one at the moment is the Ethereum network. And if you’d like to see an in-dept video explanation of what ethereum is and how it works, you can check out my video guide by clicking on the link. So there are three standards that dictate the tokenization process of NFT’s on the Ethereum blockchain: ERC-721, ERC-998, and ERC-1155 And before we talk about these ERC’s, let’s talk about what ERC means. ERC is simply an acronym that stands for “Ethereum Request for Comments.” And it is similar to BIP, which stands for “bitcoin improvement proposal.” So, since ethereum and bitcoin are blockchain-based technologies, there is no one person or entity that is in charge of deciding what new features to add, changes to make, or fixes to implement to the protocols. So, ERC is a process that was created as a way for people to contribute information about ethereum or introduce new features to the ethereum network. ERC’s, or ethereum requests for comments, are basically how developers can propose improvements to the network. So the numbers 721, 998, and 115 represent the unique ID number of those particular proposals. Cool, so let’s first talk about ERC-721. ERC-721 was pioneered in January 2018 by Cryptokitties, which is a game where people can trade and breed digital cats, where each cat is represented by a non-fungible token. The 721 standard allows for the creation of tokens with different values, basically non-fungible assets like we discussed earlier. Before the standard, people typically created tokens that were all equal or fungible, like ether for example. You can swap one eth for any other eth and they’re all the same. However, since the implementation of ERC-721, developers can now deploy tokens with differing values and attributes like descriptions, quantity available, type, all from the same smart contract from which an owner can be assigned and then the token can be transferred between users all in the same ecosystem. Nice. Next, let’s talk about ERC-998. ERC-998, is actually pretty simple. So imagine we have a video game character with different clothing items, weapons, and accessories, and each one of those things, like the shirt, the sword, the hat, all of these items are represented by separate ERC-721 tokens. So let’s say this character in its visual totality is made up of 50 separate non-fungible tokens. If I wanted to sell my character to someone, I would have to do 50 separate transactions to send it to someone, which would incur more transactions fees, is cumbersome, and not ideal. So ERC-998 was developed and implemented to mitigate this scenario by allowing bundles of separate ERC-721 tokens to be bought and sold in one transaction, so you don’t have to sell each item individually. Sweet. And finally we have the ERC-1155 standard which was pioneered by Enjin, an ethereum-based platform and ecosystem developers can build applications on. This standard allows for the deployment of both fungible and non-fungible tokens from the same contract. So imagine you develop a game where every player has a pistol and the pistols are all equal and the same. However, also within the game there are limited unique weapons players can earn, win, buy, or trade. So maybe only 10 laser cannons exist in the entire game, and maybe there’s only one magic laser sword in the entire game. This was all made possible with the implementation of the ERC-1155 standard. Nice. So you can see how standardization works and why it’s an important property blockchain provides for the NFT ecosystem at large. Which brings us to the next key property: interoperability. Interoperability just means that since all of the non-fungible tokens use the same standards and operate on the same ethereum platform, we don’t run into the issue I mentioned earlier where we have digital tickets for events on Ticket Master’s platform, while we have Fortnite skins on Fortnite’s separate platform. The interoperability property blockchain provides NFT’s allows them to be easily moved across multiple ecosystems, so when someone creates an NFT, it’s immediately viewable and tradeable on all NFT marketplaces, in virtual worlds, and other applications due to standardization of the data recorded on the blockchain. And interoperability allowing free trade on open markets takes us to the next key property blockchain lends to NFT’s, which is tradeability. So for the first time ever, users all across the world can create and launch NFT’s that will instantly be displayed on marketplaces across the entire ecosystem. In these marketplaces, people can buy, sell, trade, exchange, bid, bundle, and auction NFT’s for cryptocurrency. This allows us to transcend from a centralized or closed ecosystem like Ebay versus Fortnite marketplaces, to a true, open, free-market economy. The ease with which people can create, launch, and trade NFT’s across the entire blockchain ecosystem will revolutionize the game development industry because virtually everyone will be able to contribute creative content to the games, so it’s not all just on the initial game developers. So instant tradeability brings us to the next property blockchain brings to NFT’s table: liquidity. Fast, efficient tradeability on marketplaces will lead to high liquidity. Liquidity is just a fancy finance term that describes the level of activity in a market, or how many people are buying and selling in the market and at what frequency. So high liquidity means items in the marketplace are bought and sold frequently and fast before much price change occurs. An example of an asset with high liquidity would be bitcoin, as when you buy or sell bitcoin at market price, the transaction happens instantly because there are a lot of buyers, as well as sellers, in the market. You can sell your bitcoin for cash instantly pretty much on exchanges with high liquidity like Crypto.com or Coinbase. An example of an asset with low liquidity is a house. So if you put your house up for sale, it might be days, weeks, months, or years until you are able to convert it into cash. Even if there are a lot of buyers in your housing market, it’s still not as fast to convert the asset to cash like with the tap of a finger on your phone with bitcoin. So yes, fast, efficient tradability of NFT’s thanks to the nature of blockchain will lead to higher liquidity in the NFT marketplaces. Another property key property is: immutability. We discussed how immutability is a pillar of blockchain technology, how once data is verified and recorded to the blockchain ledger, the information cannot be changed. So immutability is key to ensuring authenticity of digital assets, as well as proving scarcity of digital assets. So people know in your game that there is actually only one magic laser sword - no one can go back and change the quantity to 100 or something similar thanks to the immutability property. The final property that blockchain brings to the table that makes NFT’s so valuable is programmability. Non-fungible tokens are fully programmable meaning that they are capable of immense complexity like forging, crafting, redeeming, random generation, and much much more. The sky's the limit, really. Awesome. Now that we understand how blockchain technology adds unique, value-driving properties to non-fungible tokens, let’s talk about how NFT’s could be used in the future across multiple industries and its implications. So we are already seeing art, collectibles, domains, gaming, and virtual worlds. Staying mindful of NFTs’ core properties, that being, verifiable digital scarcity, ownership, indivisibility, interoperability, and transferability, NFTs can be used in a myriad of different ways. As I mentioned earlier, the gaming industry will be drastically affected, as NFTs will make gaming more tangible and rewarding, while also fostering new economies and markets within the games themselves, allowing players to generate income from time spent in the game as well as creating and selling NFTs that enrich the game. So game developers will start creating new incentive systems for players, which will spark value creation for game developers, publishers, and players alike. Filmmakers and musicians could register their work on the blockchain in the form of an NFT to protect it against copyright infringement, or to manage performance rights which would remove the need for intermediaries like agents and managers. So funds would go directly to the rightful creators of the content without third parties taking a share. Since NFT’s are completely programmable, people can create non-fungible tokens that contain cryptocurrencies and digital files. NFTs can be traded and redeemable for real world assets. For example, if you check out Unisocks exchange, a total of 315 SOCKS NFTs were created and circulated. So if you bought a SOCKS NFT, you could either redeem it for a pair of socks, or trade it on the market, or continue to hold it while the price, ideally appreciates and sell or redeem when you’re ready. Almost anything in the real world can be tokenized as collectibles or similar like athletes, celebrities, and fictional characters. Proof of ownership of real world collectibles can be easily stored or transferred and impossible to forge. NFTs could also represent official documentation like birth certificates, academic credentials, warranties, identities, and DNA data. Depending on who created an NFT and all of the previous owners, we could see value derive from an NFTs provenance. Like if Elon Musk created an NFT and maybe at some point in its ownership history, Vitalik Buterin owned it at some point could have some subjective value to someone. The mere concept of ownership will change drastically as NFTs make it possible to own a real world asset that could be thousands of miles away. And undoubtedly NFTs will absolutely introduce new people to cryptocurrency and help drive adoption of blockchain technology. Yes, super exciting times we are living in, however, it won’t happen overnight. Let’s quickly go over a few bearish aspects of NFTs current reality. Building decentralized applications for NFTs is challenging and time-consuming. As someone is software development myself, you usually have to triple the amount of time you think it will take to complete. That being the case, we do see in current applications that the user experience and user interface isn’t simple enough for people unfamiliar with blockchain to just jump in and start using easily. Some NFTs that are created and listed on marketplaces could experience something similar to the DeFi food craze, where we have a YAM that went over the moon and hours later fell flat on its face hours later. So some buyers that fomo into an emerging NFT market could be stuck with a worthless NFT when the hype fizzles out. Also, most NFT projects aren’t retaining longterm users. And since there aren’t a lot of users in NFTs right now, lack of liquidity could stifle growth of the ecosystem. Also, although when an NFT is deployed, it’s recorded on the blockchain, it doesn’t mean users will have access to it forever. Right now, the access to the blockchain is hybrid, in that if we access OpenSea.io for instance to trade NFTs, and then one day OpenSea.io doesn’t renew their domain or takes down their website, you wouldn’t be able to access the marketplace anymore. So we are still using centralized portals to access the otherwise decentralized blockchain for the time being. Once the tech has more time to develop, we will start to see a lot of progress and growth in the space. So if you’re watching this video, you’re super early to this new and exciting blockchain use-case. Awesome. I hope you found this video guide about what NFTs are helpful. If you enjoyed the content, please make sure to like and subscribe to my channel for more crypto content. So are you pumped about the prospects of NFTs? Do you own any NFTs right now? If not, use the link below to secure your unstoppable domain today. What other questions do you have about NFTs that I may have missed? Let me know in the comments below. Be safe out there.
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Channel: Crypto Casey
Views: 288,390
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Keywords: nft, non-fungible token, nonfungible token, nft crypto, blockchain, bitcoin, ethereum, crypto, cryptocurrency, non fungible token, what is nft, nft art explained, nft coin, nft collectibles, nft crypto explained, nft explanation, non fungible tokens, nft art
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Length: 30min 50sec (1850 seconds)
Published: Wed Nov 25 2020
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