2021 is The Year of the NFT

The blockchain world thrives on a trend. While core blockchain innovation has raced along at breakneck speed, the burgeoning creative use cases have been just one step behind. The result is that the last 5 years have been a non-stop train of one blockchain innovation phase after another: 2017 saw the ICO boom, 2017–18 smart contract platform era blossomed, 2018–19 stablecoin, and 2020 was the year of DeFi.

It’s still early days in 2021 but it looks pretty certain that NFTs will be the blockchain trend of this year. So what’s so exciting about NFTs?

If you’ve been paying any attention to your newsfeed you probably have a good idea what an NFT is, but not necessarily why there is such excitement from the blockchain community.

What’s exciting about NFTs?

Annoyingly (and intriguingly?) this question is a little bit like asking what’s exciting about technology. NFTs are an inherent product of the abilities of decentralised ledgers, and so unsurprisingly their most exciting possibilities lie in the trustless, yet community governed possibilities of assets on a blockchain network.

At its essence, non-fungibility is a piece of decentralised tech used for storing, creating and exchanging unique things. NFT’s can have a financial value and are bought, sold and stored like any other decentralised token, asset or investment. Importantly NFTs allow us to connect unique assets to programmable money allowing new kinds of financial and creative innovation

The first and maybe most important thing to understand is the depth and breadth of functions NFTs can be harnessed for. An NFT is digital attribution of ownership recorded on the blockchain which can be applied to anything unique, digital or non-digital. So yes collectable cards and pictures, but also: a VIP membership, a hotel room key, car registrations, your concert ticket, identity documents, certifications, even your house.

Why would an NFT work better than the current analogue systems we use for proving people own things? NFTs make the whole process easy and secure. By putting a record of ownership on the blockchain you ensure that it is both a verified transaction and that it can never be altered. Even if the ownership is later transferred, the records of previous ownership will always exist on the decentralised ledger. This level of trust and transparency is enabled through the use of cryptography, the technology which powers the blockchain itself. Using cryptography on the chain we can prove someone really is the owner of a digital record, in the same as the blockchain proves someone has x amount of tokens. NFTs definitely open a wide range of possibilities for real-world and virtual assets thanks to easy transfer and proof of ownership.

Once assets are on the blockchain in the form of NFTs, the next level of possibility arrives. Existing on the blockchain means that assets can interact in the realm of programmable money opening up another world of use cases and secure streams of revenue.

We are already seeing the financial possibilities for all kinds of independent creators (visual arts, game designers, musicians, etc.). Freed from the tight and often highly unfair restrictions of digital monopolies (yes you Spotify, YouTube and others of your ilk) artists are able to directly manage the consumption of their work and therefore make a fair and representative profit from people who value them.

There are even cool things you can do so that artists get a percentage of the sale price on every single sale of their NFT, not just the initial transfer of ownership. Like the mission of the blockchain itself, it puts control back into the people’s hands rather than the digital institutions who have decided that the internet is theirs alone.

Art is just the start

The art world has proved a fantastic starting point for the rise of NFTs. Most people have a reasonable understanding of how art is sold, and they also often have a first-hand understanding of collectables. All this makes for a very successful onboarding experience for a lot of people. They don’t need to be immediately faced with the intricacies of blockchain in order to understand the NFT process and interact with the chain through them.

In fact, collectable NFTs have always been seen as a good place to start educating a non-blockchain audience and onboarding them into on-chain systems. Cryptokitties, one of the first NFT DApps to gain popularity back in 2018, was created with the original goal of introducing 1 billion people to blockchain.

Collectables and art are an easy way to win hearts and minds and introduce the concepts of blockchain to a wider audience. Once this has been achieved it will make broader NFT adoption much more possible.

Existing NFT issues

There is no denying that brand new tech comes with issues that need to be solved before mass adoption can happen. NFTs are no exception. Before we can seriously consider a future that uses NFT technology we have to first look at some of the existing problems and how they can be solved.

Massive electricity consumption: we may as well start with the largest and most reported issue. NFTs are currently mostly minted and traded on Ethereum. This blockchain uses a Proof of Work consensus mechanism, as does Bitcoin and other popular blockchains.

It’s no secret that Proof of Work and the mining required to keep these networks secure requires a huge amount of electricity, and in an age where climate change is a huge concern, this is unacceptable. Fortunately, there are good alternatives already in existence like CENNZnet. Proof of Stake consensus mechanisms are a new generation of blockchain technology that allow for secure decentralised networks without the associated energy requirements.

Most new chains are now using PoS and even Ethereum is working to convert away from PoW in the next few years.

Gas fees: Transactions on a blockchain are not free, they require a fee. This is a simple and effective security method to prevent denial of service attacks. However, this can cause problems when fees must be paid in a blockchain token whose valuation moves with the whims of the crypto market.

For older blockchains, like Ethereum with its high fiat valued token, this means that gas fees paid in ETH are now staggeringly expensive. There are solutions to this problem. Ideas like dual token economies provide a way for stable cheap gas fees alongside a high-value token.

Key management and user knowledge: Blockchain has some unique characteristics for users. One of the most important of those is key management. When setting up wallets, where tokens and assets are stored, users must set up one or more unique passwords known as keys. If these passwords are lost there is no way that the wallet can be accessed by anyone again.

Key recovery is very limited-to-non-existent, meaning there is the very real issue of blockchain assets being permanently lost. This can mainly be rectified by giving new users a good onboarding experience so they make good passwords and store them properly.

Pigeonholing your architecture: Blockchains are built on a foundation of rules which are enshrined into the chains protocol. This makes them exceptionally robust and secure, but it can also make them hard to adapt after they have been made live. NFTs really could go in any direction, so it’s important that blockchain developers looking to incorporate NFT functionality think in the big picture so as to avoid pigeon-holing their architecture.

Where to go from here?

I honestly wish my crystal ball worked accurately in this regard, but as it’s simply a desk ornament, I’m as in the dark as we all are about where the NFT ideation will go.

What I do know is that the projects scope far and wide, from fitting into the current online melting pot of the gaming universe to taking on real-world issues like event ticketing to digital identity and community building.

Projects like CENNZnet are trying to make it easier for those with cool ideas to get on the chain and put them into action. Our NFT module will make it straightforward for anyone to mint NFT assets without being locked into a specific marketplace and add some neat new features to make it easier to store share and use. Stay tuned to hear more soon!

Also published on: https://medium.com/centrality/nfts-where-do-we-go-from-here-21f4736dd849