What is an NFT? 

#NFTs #Blockchain #DigitalAssets #Innovation #MichaelGSantos #PrisonProfessors

Lesson 6: What is an NFT?

Lesson Intro:

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Each lesson includes critical thinking questions and a glossary. We encourage participants to use these lessons, and to memorialize their learning path by building a profile on Prison Professors Talent. More information on how to build a personal profile at the end of this workbook.

6. What is an NFT?

TL;DR

• NFTs are unique digital assets that represent ownership of specific items, such as virtual concert tickets or rare pieces of art.
• NFTs are stored on the blockchain, which means they can’t be easily edited, copied or duplicated. There, they can act as a publicly verifiable proof of ownership on a decentralized database.
• NFTs offer creators new opportunities for monetization, fostering innovation and supporting the growth of the creative industries.

What Does “Non-Fungible” Mean?

The term “non-fungible” refers to the irreplaceable nature of an item. A non-fungible item cannot be directly exchanged for another item of the same value because both items have different characteristics. This means non-fungible items cannot be traded on a standardized scale as their value is derived from their uniqueness and the subjective value that buyers place on them.

Fungible assets such as currency are easily exchanged because of their uniformity. In contrast, non-fungible assets are distinct and irreplaceable, which can appeal to collectors who want to acquire something truly unique.

What Is A Non-Fungible Token (NFT)?

An NFT is a cryptographic token hosted on a blockchain and it can be used to represent a digital asset. The non-fungibility of NFTs defines them as digital assets that represent ownership of one-of-a-kind items such as artwork, video game items, trading cards, virtual real estate, and other digital goods.

In recent years, NFTs have gained popularity as a way for creators to monetize their digital creations and for collectors to own unique digital assets.

How Do NFTs Work?

NFTs are based on blockchain technology, which provides a decentralized ledger that records transactions and ownership details. Its transparent and immutable nature allows the ownership history of an NFT to be clearly traced. This verifies the authenticity and legitimacy of the NFT as it changes hands over time.

Another underlying technology for NFTs is smart contracts, which are essentially self-executing programs. Smart contracts enable the creation, management and transfer of NFTs without intermediaries by automating and enforcing the relevant conditions.

A critical aspect of NFTs is the implementation of token standards. They ensure interoperability and consistency across different platforms by defining rules and functions for creating, managing, and transferring NFTs. For example, the most widely adopted token standards for NFTs are ERC-721 on Ethereum and BEP-721 on the BNB Chain.

The NFT creation process is typically referred to as minting. Using smart contracts, minting converts digital files into digital assets on a blockchain. When purchasing an NFT, you essentially acquire ownership of the unique identifier (or token ID) associated with that specific digital asset. As a result, the code owner possesses the exclusive rights to use, display, and interact with that asset.

What Can NFTs Be Used For?

NFTs have begun to redefine the concept of ownership and value in the digital world, creating new opportunities for creators and consumers. Here are some common NFT applications:

NFT art

NFT art offers artists a new way to monetize their work. By tokenizing their art, creators can sell unique digital copies, preserving the originality and scarcity of each piece. NFT art also allows collectors to showcase their pieces in virtual galleries, trade them, or even lend them to others.

NFT games

NFT games incorporate NFTs as digital collectibles, such as in-game items and characters. NFTs can also represent virtual real estate that players can trade. This has the potential to create a gaming ecosystem where players can monetize their in-game achievements and assets and create a secondary market.

NFT staking

NFT staking allows users to earn rewards by staking their NFTs as collateral. This can already be done on certain decentralized finance (DeFi) platforms, enabling NFT holders to earn interest while retaining ownership of their NFTs.

NFT tickets

NFTs can be useful for ticket management. For example, event organizers can issue NFTs as tickets that provide immutable proof of ownership and attendance. In addition, NFT tickets can be transferred and resold without involving third parties. NFT tickets can also come with exclusive benefits, such as access to VIP areas, exclusive merchandise, or special digital content.

Popular NFT Examples

CryptoPunks

CryptoPunks is one of the earliest and most iconic NFT projects. It was launched in 2017 and consists of 10,000 unique, algorithmically generated 8-bit pixel art characters. Each CryptoPunk character has different traits and attributes, which makes them attractive to collectors.

You may have even seen celebrities using these characters as their social media avatars. The success of the project has set the stage for a new era of digital art and collectibles.

Bored Ape Yacht Club

The Bored Ape Yacht Club (BAYC) is a collection of 10,000 unique, hand-drawn cartoon ape characters, each with varying features. These digital artworks serve as collectibles and give their owners access to exclusive events and virtual spaces. As such, these NFTs blur the lines between digital art and experiential offerings.

Decentraland

Decentraland is a virtual reality (VR) platform built on the Ethereum blockchain. It features a decentralized marketplace for NFTs that allows users to trade virtual plots of land and various in-game items. Decentraland is at the forefront of virtual real estate and the metaverse.

Common Misconceptions About NFTs

NFTs are completely secure

As we have learned, NFTs inherit the security features of their underlying blockchains. However, there is still the risk of fraud and scams attached to them. This can include phishing attempts or hackers exploiting smart contract vulnerabilities. There is also the possibility of counterfeit NFTs and unauthorized reproductions of copyrighted material. 

Another aspect to consider is the long-term value of NFTs. While some NFTs have attained astronomical prices, the market can be volatile and speculative. As with any investment, long-term stability is not guaranteed.

At the same time, an NFT’s security can be influenced by the blockchain on which it is minted. As some blockchains may have better developed ecosystems and more robust security than others, NFT security tends to vary.

NFTs and cryptocurrencies are the same

While both NFTs and cryptocurrencies are digital assets that use blockchain technology, they have different purposes and characteristics. Cryptocurrencies are often designed to facilitate transactions. They are also fungible, meaning each unit is exchangeable for another unit of the same currency. For example, you can exchange one bitcoin for another without there being any difference in value.

NFTs, on the other hand, are unique digital assets. They are non-fungible, meaning each has unique characteristics and cannot be directly exchanged for another NFT on a one-to-one basis. In short, NFTs derive their value from their uniqueness and scarcity.

Closing Thoughts

NFTs are unique blockchain-based digital assets that establish the ownership and verify the authenticity of the items they represent. They have gained popularity in the form of a variety of applications, offering creators new ways to monetize their work and collectors the opportunity to own and display unique assets.

However, NFTs also come with potential risks, such as fraud and market volatility. Although they share some similarities with cryptocurrencies, NFTs are distinguished by their non-fungible nature, which allows them to offer unique digital opportunities.

Further Reading

• Who Is NFT Artist Beeple and Why Is He Famous?
• What Is a Dynamic NFT and How Does It Change Over Time?
• 7 Things You Should Know About NFTs
• What Are Token Standards?

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Critical Thinking Questions

1. How does the decentralized nature of blockchain technology contribute to the security and authenticity of NFTs, and what potential vulnerabilities might still exist?
2. In what ways can NFTs create new opportunities for artists and creators to monetize their work, and how might this impact traditional art and entertainment industries?
3. What are the implications of owning a non-fungible token in terms of legal rights and responsibilities, especially when it comes to digital ownership versus physical ownership?
4. How might the uniqueness and scarcity of NFTs affect their market value over time, and what factors could contribute to fluctuations in their worth?
5. Considering the potential risks of fraud and market volatility, what strategies could be employed to protect investors and ensure the long-term stability of the NFT market?

Advocacy Initiative:

We encourage participants to begin memorializing the ways they are using time in prison to prepare for success upon release. I encourage participants to create a personal profile by:

1. Writing a simple biography
2. Writing a daily journal to show all that you’re learning
3. Writing book reports that memorialize the books you read
4. Writing a release plan to show the ways you’re preparing for success upon release

These strategies helped me immensely once I got out. By using my time wisely inside, I was able to raise capital, build businesses, and succeed in ways that few people would think are possible for someone who served multiple decades in prison. Anyone can do the same—if they prepare first.

If you’d like to follow in the same footsteps, I encourage you to begin building your personal profile. Get started by sending an email message to our team at:

Prison Professors Talent
[email protected]
32565 Golden Lantern, B-1026
Dana Point, CA 92629

Our interns will accept your email invite. You may then send the interns a message such as:

Dear Interns,  

My name is xxx, and I am in prison. I would like to begin showing the strategies I am using to prepare for success upon release. Please send me a Release Plan Workbook, and any other books that will help me prepare for the job market. After receiving those workbooks, I will begin building my profile to show others how I am using my time inside to prepare for success outside.  

Sincerely,
[Your Name]

Glossary

• Asset (noun) – A useful or valuable thing, person, or quality, especially one that is owned.
• Blockchain (noun) – A system in which a record of transactions made in cryptocurrency is maintained across several computers that are linked in a peer-to-peer network.
• Collector (noun) – A person who collects things of a specified type, professionally or as a hobby.
• Cryptographic (adjective) – Relating to the art of writing or solving codes.
• Currency (noun) – A system of money in general use in a particular country.
• Decentralized (adjective) – Transferring control of an activity or organization to several local offices or authorities rather than one single one.
• Digital (adjective) – Involving or relating to the use of computer technology.
• Distinct (adjective) – Recognizably different in nature from something else of a similar type.
• Exchange (noun) – An act of giving one thing and receiving another (especially of the same type or value) in return.
• Fungible (adjective) – (Of goods contracted for without an individual specimen being specified) replaceable by another identical item; mutually interchangeable.
• Immutable (adjective) – Unchanging over time or unable to be changed.
• Intermediary (noun) – A person who acts as a link between people in order to try to bring about an agreement or reconciliation; a mediator.
• Legitimacy (noun) – Conformity to the law or to rules.
• Monetization (noun) – The process of converting something into money or currency.
• Non-fungible (adjective) – (Of an asset) having unique properties that prevent it from being interchanged or replaced.
• Ownership (noun) – The act, state, or right of possessing something.
• Scarcity (noun) – The state of being scarce or in short supply; shortage.
• Smart contract (noun) – A self-executing contract with the terms of the agreement directly written into lines of code.
• Token (noun) – A thing serving as a visible or tangible representation of a fact, quality, feeling, etc.
• Verifiable (adjective) – Able to be checked or demonstrated to be true, accurate, or justified.