What are NFTs?

This is an easy-to-understand guide for beginners on the rapidly growing NFT market, from the basics to how to purchase NFTs and what to look for in them. NFTs are rapidly becoming popular.

What are NFTs? A thorough explanation for beginners of how they work, how to buy, and their future prospects.

NFTs, irreplaceable tokens using blockchain technology, emerged in 2017 and have continued to grow rapidly since 2021. NFT transaction services provider OpenSea, which provides NFT trading services, has seen its monthly trading volume jump from 800 million JPY in January 2021 to approximately 10 billion JPY in the following February. Furthermore, in March of the same year, X (formerly known as Twitter) founder Jack Dorsey's first tweet was converted to an NFT and sold for approximately 300 million JPY.

Here, we will explain the mechanism and concept of NFTs, which continue to expand and spread, from the basics. The following is a basic explanation of the structure and concept of NFT, which continues to expand and spread.

NFTs are data that have an asset value and cannot be rewritten

NFT stands for Non-Fungible Token. It means "digital data that can never be tampered with or forged.”

Because conventional digital data such as images, videos, and game software can be easily duplicated, copyright infringement and failure to pay proper remuneration to the creators have occurred frequently. NFTs have greatly improved these issues by providing the data with a digital ID that cannot be rewritten.

With NFT, it is easy to determine whether the data is an original genuine copy or a copy of an original, thus eliminating the possibility of "buying a fake. This makes the digital data itself an asset that can be legitimately traded.

What is the blockchain used for NFTs?

NFTs are based on the blockchain technology used in crypto assets (virtual currencies). A blockchain is a single block of data that is linked together like a chain.

Each block records transaction history and connection information, including information about the previous block. A new block is created for each transaction, and when approved by a third-party computer terminal participating in the blockchain, it is connected to the end of the chain as a new block. The many computer terminals participating in the chain then share the transaction history recorded in the chain and are constantly synchronized.

What makes blockchain technology superior?

Let us explain three typical features of blockchain technology. By learning about the superior aspects of blockchain technology, you will be able to understand NFTs better.

・Many participants manage data autonomously.

A blockchain is an autonomous decentralized system in which many computer terminals participating in the chain share the same information. As new transactions add information to the chain, they are synchronized, ensuring that the most up-to-date information is always shared. This structure is what gives it its other outstanding features.

・Extremely difficult to tamper with

The information written to the blockchain is highly encrypted. Since information "prior to the block" is also recorded, any attempt to falsify transaction information at a given point in time would require falsification of all information in all newer blocks.

Furthermore, if this is done at all terminals participating in the chain, it is virtually impossible to tamper with the chain.

・No fear of system downtime

In a blockchain, all participants keep updating their data and the latest data is shared by all. Therefore, even if trouble occurs somewhere and data is destroyed, the entire blockchain activity will not be disrupted. Unlike centralized systems that consolidate data on specific servers, there is very little concern about system downtime.

Why are NFTs attracting so much attention?

At the beginning of this article, we stated that "NFTs have an asset value". This is because blockchain technology ensures that they are authentic and cannot be counterfeited or illegally copied. As a result, a large amount of digital data is converted into NFTs and traded by investors around the world.

Next, we'll discuss why NFTs are garnering so much attention. Let's take a look at the four The next section will look at the four reasons why NFT is attracting attention.

Reason 1: It is digital data that cannot be replaced

Irreplaceable means "one and only".

For example, in the case of currency, Mr. A's 500-yen coin and Mr. B's 500-yen coin can be exchanged as the same thing. This constitutes a substitutable item.

Now consider a special autographed T-shirt. The special T-shirt with the autograph is unique and irreplaceable. The autographed T-shirt with that signature on it is unique and cannot be changed.

An NFT is unique like the example of the autographed T-shirt.

Reason 2: Anyone can create and trade, and secondary distribution is possible

Anyone can create and trade NFTs. A wide variety of items have already been converted to NFTs by using tools and apps to convert your own digital art into an NFT.

NFTs can also be bought and sold in an online NFT marketplace. Just like buying a shirt or an accessory at an online store, you can find and purchase your favorite digital content. In addition, you can sell your digital content to anyone who wants it and make a profit. Another important feature of this secondary distribution is that a portion of the profit is returned to the creator as well.

Reason 3: Can incorporate programs and add additional functions

NFTs can be programmed to take a predetermined action when a set condition is met. The ability to program additional functions into data is called programmability, and is the primary mechanism that characterizes NFTs.

Consider, for example, the case of digital art sold as an NFT and then sold by the buyer to another third party. In secondary distribution, where books are sold as used books, no profit is returned to either the publisher or the author.

However, the NFT's blockchain records the author, owner, and transaction history, making it possible to track and record secondary distribution information.

In addition, certain blockchains have a function called "smart contracts," which can be automatically activated by embedding a program. This means that even in the case of secondary distribution, it is possible to activate a pre-embedded program and remit a portion of the sales price to the author, as mentioned above, as well as specify the percentage of commission and the amount of the work distributed.

Reason 4: Easy to trade if you have Ethereum

NFTs are created and traded primarily using the blockchain of existing crypto assets. The crypto asset employed in many NFT transactions is Ethereum (ETH).

Ethereum (ETH) was originally designed to be programmed into the blockchain, and its standard, ERC721, is publicly available, making it easy to create and trade NFTs based on Ethereum (ETH).

There are also a number of wallets and NFT marketplaces that follow this standard, making it easy to trade.

NFTs used in various genres

Any digital data can be converted to NFT. Therefore, a wide variety of items appear as NFTs and in NFT marketplaces. Here are some examples.

・NFT Games

NFT games refer to games created by applying blockchain technology or NFT technology. By playing the game, players can earn crypto assets and buy and sell items, characters, and currency used in the game among themselves.

These transactions can use crypto assets as well as in-game currency, so you can profit from trading in-game items.

・NFT Art

What is NFT Art?  NFT art is artwork created on a PC or tablet and converted to an NFT. By converting the artwork to an NFT, it is possible to prove that the artwork is authentic and not a copy. It has the same asset value as an autographed painting or a numbered print, and is traded at a reasonable price. Paintings by popular artists and rare works are expensive, some of them exceeding 100 million JPY.

Recently, animation cels and originals have been traded as NFTs, serving as a brake on the distribution of pirated copies.

・NFT Trading Cards

NFT trading cards are NFT versions of trading cards used in digital card games. Cards used in the game usually cannot be taken out of the game. Also, no matter what kind of rare cards you have, if the game service ends, the data of the cards will be lost at that moment.

However, with trading cards made into NFTs, you can take the cards out of the game and they will not be lost when the service ends.

In addition to game cards, trading cards containing images and videos of idols and athletes have been converted into NFTs and are in circulation. Cards featuring rare shots and highlight moments are very popular and fetch high prices.

・NFT Tickets

NFT tickets are tickets for sporting events and concerts in NFT form. The uniqueness of the ticket and the fact that the transaction history is recorded prevent counterfeiting and resale, and control the distribution of tickets. This makes strict checks at the entrance on the day of the event unnecessary, which has the advantage of reducing the number of staff and the time required to enter the venue, making it a highly practical method of use.

The ability to track transaction history also makes it possible to use the system for promotions and fan services, such as event announcements directed to the holders of those tickets.

・NFT Real Estate

NFT real estate is an NFT version of land or buildings in a virtual world. For example, in The Sandbox, an NFT game based on the crypto-asset Ethereum (ETH) The Sandbox, offers a vast field called Land, which you can buy to build stores and hold events. Land is capped at 166,464 parcels, so it is expected that as the number of users increases, land prices will rise and real estate income will increase.

・NFT Membership

NFT memberships are NFT versions of hotel and restaurant memberships that provide members with exclusive services and privileges. Since transactions can be tracked, memberships that are no longer needed can be resold to other applicants, thereby creating a system in which not only the seller but also the issuer can profit.

A platform to easily create NFT memberships has also emerged and is being used by hotels and restaurants as well as luxury car sharing groups.

How to Buy NFTs

NFTs can be purchased through NFT marketplaces, which are like online stores. There are many different NFT marketplaces and a wide variety of items are traded. Crypto assets are used for payment, with Ethereum (ETH) being the most commonly used. bitFlyer is recommended because you can open an account and make purchases with a simple procedure.

The following is an explanation of the transaction procedure using NFT Art as an example.

1 . Open an account with bitFlyer

First, open an account with a crypto asset exchange. The procedure differs from exchange to exchange, but in the case of bitFlyer, you register your personal information after registering your email address. After that, you can open an account by verifying your identity with your smartphone. The process is not difficult, and you can open an account in as little as 10 minutes.

2. Buy Ethereum (ETH) on bitFlyer

Once the account is opened, deposit JPY. Once the deposit is confirmed, purchase Ethereum (ETH). Because crypto assets are constantly undergoing minor price fluctuations, you can also make a profit by repeating transactions. Until you get used to it, you can start with a small amount and work your way up. We recommend that you buy as much Ethereum (ETH) as you need for your NFT transactions.

3 . Prepare a crypto asset wallet and transfer funds.

You need a wallet to transfer NFTs in and out. It is like a wallet where you can store your crypto assets. MetaMask is recommended for trading NFTs. It is highly compatible with Ethereum (ETH) and can be used with Ethereum-based blockchain games.

There are two types: one that is built into the PC browser as a function extension, and the other that is installed on a smartphone as an application.

Once the wallet is ready, transfer the required amount to MetaMask from the bitFlyer account page. At this time, it is safer to transfer a small amount first, and check that there are no problems before transferring the full amount.

4 .Create an account in the NFT Marketplace

Register an account in the NFT marketplace where the NFT art is listed. The NFT marketplace is represented by OpenSea. It is the world's largest NFT marketplace and offers a wide variety of NFTs, including digital art, music, and lands in virtual worlds.

The OpenSea home page has an icon for account settings in the upper right corner of the page. On the top right corner of the OpenSea home page. From there, connect to MetaMask and then follow the dialog to create your account. Now you are ready to create an account and purchase NFT art on OpenSea.

5 . Find and purchase the artwork you wish to purchase.

OpenSea is a collection of NFTs categorized by genre and further organized by creator. You can browse through categories such as artwork and photography, and find your favorite works. Click on the desired work to purchase it.

What to look for when purchasing NFTs

Although the procedure for purchasing NFTs is something that you will quickly become familiar with after a few experiences, there are a few things to keep in mind when making your purchase.

・Transaction fees are incurred.

Commonly referred to as "gas money," there is a fee for each transaction. This is a reward for the work of writing data on the blockchain and varies depending on network congestion. It is important to note that if you purchase a large number of NFTs, you will pay a significant gas fee.

・Requires careful storage

Purchased NFTs are stored in a wallet, but soft wallets like MetaMask are always connected to the Internet, so there is a security risk. There is a possibility that your PC could be infected by a virus and the private key information in the wallet could be leaked.

It is wise to transfer NFTs purchased in the NFT marketplace to a hardware wallet that can be connected to MetaMask. For example, the Ledger Nano series is a typical hardware wallet that can be used in conjunction with MetaMask to safely store NFTs.

・Not enough legislation is in place.

NFTs have greatly enhanced the credibility of digital data transactions. However, Japanese law is based on the premise that it does not recognize ownership rights to things that have no physical substance. In other words, the concept of ownership does not legally exist for digital data.

Even if one purchases authentic digital art through legitimate procedures, it is currently extremely uncertain whether it will be legally recognized as one's own. However, it can be said with certainty that as the market expands, legislation will be developed. Please make sure you understand this before doing business with us.

Now is the time to get started with NFT!

NFTs are a rapidly expanding market. Not only are digital art NFTs also being explored for practical uses such as NFT ticketing, and its future is increasingly promising.

Now is the perfect time to get started with NFTs, which will attract even more attention in the future. Even beginners can easily use bitFlyer, and enjoy the diverse world of NFTs.