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Last Updated on 2 months by Web3 Studio

Digital art and culture are undergoing a radical transformation, thanks to the emergence of a new form of digital asset: the non-fungible token, or NFT.

NFTs have exploded in popularity in 2021, attracting the attention of artists, celebrities, collectors, investors, and enthusiasts with famous NFTs sales like:

  • A collage of 5,000 digital images by the artist Beeple sold for $69.3 million at Christie’s auction house. 
  • A celebrity NFT video clip of a slam dunk by NBA star LeBron James sold for $208,000 on NBA Top Shot.
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This article will explore everything there is to understand about NFTs, from what is an NFT and how does it work, to its challanges.

But before that, bear in mind that we, at Fracas NFT agency, have solid years of experience planning and executing several NFT projects. So…

If you ever need to create an NFT project down the line, we’re your best partner

Definition of NFT

First off, what is a NFT? NFT stands for non-fungible token. Essentially, this is a type of digital asset that is verified and recorded on a blockchain and is used to certify the ownership and authenticity of a digital object. 

NFTs are one-of-a-kind and cannot be copied, substituted, or divided. Each NFT has a unique code and a digital signature that distinguishes it from other NFTs and links it to its creator and owner.

NFTs are different from cryptocurrencies, which are fungible, meaning they are identical and interchangeable. 

Elliot Leach, Art Director at Fracas Digital, has a brilliant analogy for this:

For example, one bitcoin is equal to another bitcoin and can be exchanged for another bitcoin or any other cryptocurrency. However, one NFT is not equal to another NFT and cannot be exchanged for another NFT or any other digital asset. For example, one CryptoKitty is not equal to another CryptoKitty and cannot be exchanged for another CryptoKitty or any other NFT

Non-fungible assets are also different from other digital files, such as images, videos, or music, which can be easily copied, shared, or downloaded. That’s because an NFT art is not the digital files itself but rather the digital certificates of ownership and authenticity of the digital files. 

Essentially, they do not prevent the copying or sharing of the digital files. The point of NFT is to provide a way to prove who owns the original or authorized version of the digital files.

Now that you know what is NFT, how does it work? 

How NFTs Work

NFTs are created, bought, sold, and traded on the internet using blockchain technology and smart contracts. 

To create an NFT, a digital creator can use a platform or a protocol that supports NFT creation, such as Ethereum, Solana, or Cardano. The creator can upload their digital file, including an image, a video, or a song, to the platform or the protocol and then mint it as an NFT using a smart contract. 

The smart contract will assign a unique code and a digital signature to the NFT and record it on the blockchain, along with the creator’s identity and ownership. The creator can also set the attributes and properties of the NFT, such as the name, the description, the edition, and the price.

This isn’t the easiest thing to do, and that’s why the best result is obtained when an NFT agency is involved in the creation process. 

To buy, sell, or trade NFT collections, a digital collector or investor can use popular NFT marketplaces or platforms that supports NFT transactions, such as OpenSea, Blur, or Rarible. They also need a digital wallet to do this. 

Unique features of NFTs

NFTs have several unique features that distinguish them from other digital assets.

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The first is scarcity. This mean they have a limited supply or a limited edition. The scarcity in the NFT market creates a sense of exclusivity and value for the collectors and the investors, who are willing to pay a premium for owning a rare or unique digital object.

The scarcity of NFTs also creates a potential for appreciation and speculation, as the demand for NFTs may increase over time while the supply remains fixed or decreases.

Provenance is another key feature to note. Put simply, NFTs have a clear and verifiable history of ownership and authenticity. The provenance of NFTs is ensured by the blockchain, which records and verifies every creation and transaction of NFTs and links them to their creator and owner. 

Finally, NFTs are programmable. Essentially, they have the ability to perform certain functions or actions based on the code and the logic embedded in the smart contracts. 

Benefits of NFTs

What are some of the advantages of NFTs? 

Ownership and Authenticity

 With NFTs, it’s easier for creators to claim and prove the ownership and authenticity of their digital creations and to protect them from unauthorized copying or duplication. 

Creative Possibilities

NFTs provide a way for digital creators to explore and express their creative possibilities and to create new and innovative forms of digital art and culture. Just take a look at NFTs like Crypto Bulls Society and LuckyPunx. These projects show creativity in action. And guess who’s a partner in their success. You guessed right, Fracas! 

Economic Opportunities

Finally, NFT crypto makes it extremely easy for digital creators to monetize and capitalize on their digital creations. Thus, generating new and alternative sources of income. Moreover, via web3 job websites, professionals can find jobs, which further underpins the economic opportunities NFTs provide.

Exploring NFT Use Cases

NFTs have many use cases and applications across different domains and industries, such as:

Art and Collectibles

NFTs are used to create, buy, sell, and trade digital artwork and collectibles, such as paintings, drawings, sculptures, animations, photographs, memes, stickers, and cards. NFTs enable digital artists and collectors to access the global digital art market and discover diverse forms of digital art and culture. 

For example, LuckyPunx, one of our clients, is a digital art collection project that brings together people who share a love for Asian folklore. 

Music and Entertainment 

You’ll also find people using NFTs to create, buy, sell, and trade digital music and entertainment content, such as songs, albums, videos, podcasts, and live performances. It allows digital musicians and entertainers to easily monetize and distribute their work directly to their fans and to create new and innovative forms of digital experiences. Some examples of NFT platforms and projects for music and entertainment are Audius and Async Art.

Gaming and Virtual Realities

Gaming enthusiasts can also use NFTs to create, buy, sell, and trade digital gaming and virtual reality assets, such as characters, skins, NFT card, weapons, items, and lands. This plays an active role in bringing immersive and interactive digital worlds to gaming. 

One of our clients is also actively exploring this use case: Square Enix. Square Enix is a heavyweight web2 gaming brand that’s exploring the NFT gaming industry with the game Symbiogensis. For Square Enix, our NFT marketing agency and game development company offered end-to-end European marketing services, which have given the project over 40k followers on Discord and Twitter. 

Apart from LuckyPunx and Symbiogensis, we’ve also successfully executed several other NFT projects with multiple use cases, with services like NFT PR and web design. You can go through our case studies for more information.

If you desire a similar level of success for your project, we are here to help, of course

Challenges and Considerations

While NFTs offer exciting potential for the future, there are also several challenges and risks associated with their adoption and use:

Environmental Impact

NFTs are often criticized for their high environmental impact due to the energy consumption and carbon emissions associated with the blockchain technology that underpins them. 

Most NFT trading cards are created and traded on the Ethereum blockchain, which uses a proof-of-work (PoW) consensus mechanism that requires a large amount of computational power and electricity to validate and secure the network. 

According to some estimates, the Ethereum network consumes more energy than some countries, such as Ireland or Switzerland. 

However, there are also efforts to reduce the environmental impact of NFTs, such as using alternative blockchains that use more energy-efficient consensus mechanisms, such as proof-of-stake (PoS) or proof-of-authority (PoA), or using renewable energy sources to power the blockchain operations.

Intellectual Property Rights

NFTs also raise some challenges and concerns regarding the intellectual property rights of digital creators and owners. While NFTs can provide a way to prove the ownership and authenticity of a digital object, they do not necessarily grant exclusive rights to use, reproduce, or distribute the digital object. The terms and conditions of each NFT may vary, depending on the platform, the protocol, and the smart contract that governs them. 

For example, an NFT collection may only grant the right to display or resell the digital object, while others may grant the right to create and sell derivative works. Some NFTs may also require the payment of royalties to the original creator or the previous owner, while others may not. 

Therefore, NFT creators, buyers, sellers, and NFT marketplace platforms need to be clear and transparent about the intellectual property rights associated with each NFT digital art. Plus, they have to respect and protect the rights of others.