2. Most of what you will read about
NFTs focuses on how people
with too much money are buying
worthless things using NFTs.
Art that you can’t hang on your
wall for $1.5m, the Nyan Cat
meme for $590k, a video clip of
LeBron James dunking for
$200K, even Jack Dorsey’s first
tweet for $10M!
Just like the discourse around
Bitcoin, Blockchain, ICOs, and
DeFi, the focus is almost
always on the hype and
not on substance.
Enabled by the game-changing
breakthrough of blockchain
technology, NFTs are an
innovative solution to severe
problems plaguing the music,
art, and content creation
industries.
So what the heck are NFTs?
How do they work?
And why should you care?
ART YOU CAN’T HANG?!
Presented by
3. What do you think of when you
first hear ‘tokens’?!
Do you think of round pieces of
metal or plastic?
Come with me to Yap islands,
part of The Federated States of
Micronesia, an island country in
the western Pacific Ocean
associated with the United
States.
Up until the 20th century, native
inhabitants of Yap islands used
Yapese stone money.
Yapese stone money was made
out of large stone disks called
Rai, weighing over 8,000
pounds, and created from the
limestone deposits of the nearby
island of Palau.
Rai stones were not moved
when spent but simply changed
owners.
The small community kept track
of the transactions orally, just like
Arabs kept track of poetry,
poets, and tribes.
One day a Rai stone sank into
the ocean as it was being
transferred on a canoe, but the
community still used it as money
even though no one could see it
or had physical access.
The Rai was a token used as
currency, and the community
kept an oral ledger of its
transactions.
It may sound ridiculous today.
Stones, not to mention
immovable ones, are not money!
STONE OR PLASTIC?!
4. A large (approximately 2.4m [8 feet] in
height) example of Yapese stone money
(Rai) in the village of Gachpar
5. You would think colourful casino
chips are money.
Both the Rai stone and
casino chips served as
a visible and tangible
representation of value,
a token.
A token is a thing that
serves as a visible or
tangible representation
of a fact, quality, feeling,
etc. It can be a voucher
you can exchange for
goods or services, it can be a
ticket that gives you access to
certain privileges, or it can
be a plastic disk you
use to pay for
games in an arcade.
We can say a token can be
whatever you want it to be, as
long as others agree with
you on what the token is
or what it represents.
The critical difference
between a token coin
and a currency or
legal tender coin is a
legal tender coin is
issued by a governmental
authority and is freely
exchangeable for goods.
On the other hand, a token coin
is limited in use and is often
issued by a private company,
group, association, or
individual.
LET’S SAY YOU WERE
TELEPORTED TO VEGAS
6. Until the last few decades, all
tokens were physical tokens;
however, we got digital tokens
with the advent of technology.
A digital token is a unit of
information exchanged between
users or machines to facilitate
and represent a real-world
transaction. The transaction can
be anything from an online
money transfer to subscribing to
a service.
What about crypto tokens?
With the introduction of bitcoin
and the rise of blockchain
technology, we got crypto
tokens.
Crypto tokens are digital tokens
created using cryptography and
exchanged exclusively on
blockchain networks.
Crypto tokens usually represent
a particular fungible or non-
fungible asset or utility.
You may be thinking, Wait, what?
Cryptography! Blockchain!
Am I supposed just to know
what these are?!
And what the hell does ‘fungible’
mean?
Ok, let’s break it down.
WHAT IS A DIGITAL
TOKEN?
7. Fungibility refers to the
interchangeability of a
good or asset. Put
simply, when
something is
fungible, it means
every other thing
like it has the
same value.
Fungibility is a core
property or money.
Let’s say you have a 100 US
dollar note. You probably don’t
care if someone took it and gave
you another 100 US dollar note
in its place.
For you, it’s the same; it holds
the same value.
One may be a little worn out,
crumbled, or someone decided
to use it as a temporary notepad.
It’s still a 100 US dollar note, and
it has the same value.
However, you wouldn’t feel the
same if someone took
your 100 US dollar
note and
gave you a Canadian 100 dollar
note because they do not have
the same value.
We can say US dollars are
interchangeable and therefore
fungible. However, US dollars
and Canadian dollars are not
interchangeable, therefore, not
fungible.
FUNGIBLE!
WHAT’S THAT?
8. On October 31,
2008, a link to a
paper authored
by Satoshi
Nakamoto titled
Bitcoin: A Peer-to-
Peer Electronic
Cash System was
posted to a
cryptography mailing
list.
To many probably, this was just
another attempt to suggest a
solution to some of the technical
challenges of using peer-to-
peer distributed networks.
The paper described “a
system for electronic
transactions without
relying on trust.”
A couple of
months
earlier, on
August 18,
2008, the domain
name bitcoin.org was
registered.
The identity of
Satoshi
Nakamoto
remains a
mystery till today.
A pseudonym used
by the person or
persons who developed
bitcoin. After releasing the
bitcoin white paper, he, she, or
they created and deployed the
bitcoin software on January 3,
2009.
The bitcoin network became a
reality when people started to
download and run the bitcoin
software on their computers, and
the first block of data was added
to the chain.
BITCOIN
9. Blockchain is a technology that
enables the creation of
decentralized networks of
computers (nodes) that can
securely exchange transactions
without the need for a
centralized authority (server or
group of servers).
In a network like PayPal, a
centralized authority (server or
group of servers managed by
PayPal admins) regulates,
validates, verifies, and keeps a
record of all transactions in a
centralized database.
PayPal executives or anyone in
PayPal with the right admin
access or power can choose to
shut the services of PayPal at
any moment, and you will lose
access to any money you have in
PayPal, in addition to the ability
to perform transactions using
PayPal.
WHAT IS
BLOCKCHAIN?
You are also limited to sending
and receiving transactions to the
countries that PayPal is willing to
serve and people approved to
have a PayPal account.
You pay what PayPal decides
you should pay for transactions
and exchange rates.
PayPal holds all the power; you
are just a customer.
10. In a blockchain network, every
computer (node) regulates,
validates, verifies, and keeps
track of all transactions on the
network in an unchangeable
(immutable) record (ledger).
There is no central authority in a
public blockchain network, no
one can shut it down, and no
one can prevent any node from
joining from any part of the
world.
You can send and receive
transactions from anyone,
anywhere in the world.
Just like the Internet is made
possible through a set of
technologies, protocols, and
software coming together to
enable you to make an Amazon
purchase. Blockchain is made
possible through a set of
technologies, protocols, and
software coming together to
allow you to send a monetary
transaction to someone without
relying on the likes of PayPal.
Since each public blockchain is
decentralized and not owned by
any entity, each public
blockchain network has its own
currency used for transactions.
For the Bitcoin network, that
currency is bitcoin; for the
Ethereum blockchain, it’s ether.
Currencies used in blockchain
networks are usually issued
through a computational process
called mining that involves
running complex mathematical
processes that require a lot of
computing power.
Blockchain networks also have
cryptography at almost every
level, including creating their
currencies; that’s why we call
those currencies
cryptocurrencies.
11. Cryptography is a method of protecting information and
communications through codes so only the parties in that
communication can read and process its information.
Cryptography in Bitcoin prevents any alteration or manipulation
because it secures the transactions and blocks of data by complex
mathematical algorithms that are extremely hard to break.
Simultaneously, cryptography makes it easy and fast to verify and
validate Bitcoin transactions and blocks.
SO WHAT’S
CRYPTOGRAPHY?
12. Yes. In a blockchain, data is
stored in a chronicle ledger,
where each entry (block) is
linked directly to the
previous entry (block) and
all the other previous
entries (blocks), forming
a chain of blocks
— a block chain.
Ledger-based data
structures are nothing
new; however, they are
considered slow and
wasteful because
storage was limited.
In today’s world, storage
is very affordable. A ledger-
based system that keeps
all the history of data
changes can
become essential
compared to the
current data
structures that only maintain the
latest data set.
What a blockchain
architecture provides is
immutability, i.e. prevention
against fraud and attempts
to manipulate the data.
With a blockchain-based system,
any change to any data will
change the whole blockchain
due to the connection
between the blocks.
BLOCKS! IS THAT WHY
WE CALL IT A “BLOCK”
CHAIN?
13. Crypto tokens are created
through tokenization, converting
rights to an asset into a digital
token protected by cryptography,
tracked and exchanged on a
blockchain network.
Tokenization and creating pieces
of information that correspond to
fractions of a real-world asset
can be done without using a
blockchain and without
cryptography, using existing
centralized networks.
After all, that’s what the stock
market is. With every stock you
purchase, you own a fraction of a
company.
However, maintaining and
running a stock market requires
massive investment in
technology infrastructure,
partnering with intermediaries to
handle the clearing and
settlement. There is also a need
for regulators to make sure
everyone plays by the rules.
Assets like stocks can be
tokenized using a blockchain-
based system, eliminating the
need for a central authority,
intermediaries, or intermediaries
to manage the exchange of
those assets or stocks.
In a blockchain-based system,
the rules can be built into the
blockchain software; it applies to
everyone eliminating the need for
a regulating body.
HOW DO WE GET
CRYPTO TOKENS?
14. Let’s take a more in-depth look
at why we should consider
tokenizing assets.
Assets are the cornerstone of
business and trade. They are the
resources we use to create,
deliver, and capture value.
Assets are classified into two
major classes: tangible and
intangible.
Tangible assets have a physical
substance, such as currency,
buildings, real estate, vehicles,
inventories, equipment, art
collections, precious metals,
rare-earth metals, fossil fuel, and
crops.
Recent estimates place the
current value of all real-
world assets at
around $256
trillion
globally.
Intangible assets lack physical
substance and usually are very
hard to evaluate. They include
patents, copyrights, franchises &
licenses, music, digital art,
goodwill, trademarks, and trade
names.
Despite a turbulent 2020, global
intangible value is now at an all-
time high of US$ 65.7 trillion.
Tangible and intangible
assets each face unique
challenges when it
comes to trading
them:
Tangible
assets are
costly to move
and transfer.
Intangible assets, while
easier to move and transfer, are
difficult to subdivide.
WHY DO WE NEED
CRYPTO TOKENS
ANYWAY?!
15. Depending on the asset, trades
may have to go through
extensive regulatory processes,
require high fees, and take too
much time.
Trading these assets also suffers
from the challenges of doing
business using centralized
systems, the need for trusted
intermediaries, the high costs,
the lack of efficiency, and
security and privacy
vulnerabilities.
These challenges make markets
highly illiquid and not within
reach of most people.
When an asset is tokenized, it
becomes much easier to trade,
and it can be made accessible
from anywhere in the world.
Tokens, after all, are pieces of
information that can be
transmitted on the internet and
tracked using a distributed
ledger (a blockchain).
16. Tokenizing assets is one of the
most transformative aspects of
the new blockchain world we are
living in today.
For the first time, everyday
people can build wealth through
fractional ownership of assets
that appreciate with time.
Suddenly, building generational
wealth through homeownership,
which is becoming more and
more out of reach, is now within
reach.
By tokenizing real estate, anyone
can own fractions of properties
in several key markets, like
Vancouver, for example, where
property prices are ridiculously
high.
Why work all your life to own one
property?!
It’s an asset that is highly illiquid.
You are centralizing your risk in
one asset in one location when
you can use the same
investment to diversify your
portfolio by owning fractions of
properties in the best cities in the
world.
And because of the
decentralized, trustless,
immutable qualities of
blockchain, we can democratize
access to such assets by
reducing entry barriers, lowering
the costs, increasing
transparency, significantly
increasing efficiency, and
enabling innovation.
WHY SHOULD I CARE?
WHAT’S IN IT FOR ME?
17. Before we jump into NFTs, we
need to explore the different
types of crypto tokens.
Payment Tokens
(Cryptocurrencies)
These are native cryptographic
assets of a particular blockchain
network, intended to fulfil the
functions of a currency, mainly as
a medium of exchange and store
of value. Some of the well-known
Cryptocurrencies are:
• Bitcoin
• Bitcoin Cash
• Litecoin
• Monero
• ZCash
Platform
Tokens
Platform tokens are usually
associated with blockchain
platforms that provide the ability
to build decentralized
applications — Dapps.Some of
the well-known platform tokens
are:
Ether (ETH) by
Ethereum, a blockchain
platform with smart
contract capabilities
EOS by EOS.IO, a
blockchain platform
with smart contract
capabilities.
ADA by Cardano, a blockchain
platform with a
research-first driven
approach
Lumens by
Stellar, a
blockchain
platform
focused on cross-border
and multi-currency transactions
Utility Tokens
Utility tokens are intended to
give holders perks such as
access to the network,
application, or service, or voting
rights.Some of the well-known
utility tokens are:
WHAT ARE THE
DIFFERENT TYPES OF
TOKENS?
18. BAT - Basic
Attention Token (on
the Ethereum
Blockchain): can be
exchanged between
publishers, advertisers,
and users on a browser
called ‘Brave.’ Brave is
designed to increase privacy via
blocking third-party ad trackers
while monetizing user attention
and rewarding content creators/
publishers accordingly.
GNT - Golem
Network Token (on
the Ethereum
Blockchain): is used
to provide everyone
with access to the
necessary distributed
computational energy at a
low cost on the Golem
marketplace.
FUN - FunFairToken (on the
Ethereum Blockchain): issued by
FunFair Technologies so players
can use it to play casino games.
FILECOIN: issued by the
Filecoin project to give
access to a
decentralized storage
system.
Security Tokens
Security tokens qualify as
“investment contracts“ or
securities and therefore are
subject to securities registration
requirements.These tokens are
classified as securities in the US-
based on the Howey Test, which
the US Supreme Court created
for determining whether
something qualifies as security:
It is an investment of money.
There is an expectation of
profits.
The investment of money
is in a common enterprise.
Any profit comes from the
efforts of a promoter or third
party.
Security tokens are usually the
ones resulting from tokenizing
tangible or intangible assets.
19. Natural Asset
Tokens
Natural asset tokens represent
natural assets such as gold, oil,
natural gas, base metals, carbon
credits, and energy.
Examples of natural asset
tokens:
POWR - Power Ledger Token
lets users buy and sell electricity
using Power Ledger, a
blockchain-based, peer-to-peer
energy platform.
20. Crypto-Fiat
Currencies and
Stablecoins
Unlike Bitcoin, Litecoin, and
other cryptocurrencies and
tokens that experience high price
volatility, stablecoins are
designed to maintain a relatively
stable value.A stable coin is tied
or ‘pegged’ to an underlying
asset or currency, including:
• Fiat currencies. A crypto-asset
can be related to one or more
fiat currencies.
• Real-world assets such as
securities, commodities, real
estate, and financial assets.
• Crypto-assets.
Stable coins can also be
algorithmically controlled to
mimic monetary policy and
adjust the supply of tokens to
match demand to keep the price
stable.
There are two categories
of stable coins:
Centralized
custodial
stablecoins: a
centralized
custodian holds the underlying
asset(s).
• USDT by Tether, USD Coin
(USDC) by Coinbase, and
Paxos (PAX)
• Digix Gold Token (DGX), Tether
Gold (XAUT)
• Libra by Facebook
Financial institutions use these
stablecoins to facilitate fast and
low-cost cross-border transfers.
Decentralized non-custodial
stablecoins: managed in a
decentralized fashion, usually
operated through smart
contracts, that have reserves in
cryptocurrency rather than fiat.
Dai is a stablecoin
cryptocurrency that aims to keep
its value as close to one United
States dollar as possible through
automated smart
contracts on
21. The challenge
with the discourse
around NFT is this
constant comparison
between the real world
and the digital/virtual world and
the very simplistic statement of
“buying art you can’t hang on
your wall!” alluding to the
ridiculousness of such a thing.
So let’s break it down and dispel
the misconceptions.
First of all, WTF are
NFTs?
Crypto Collectibles or Non-
Fungible Tokens (NFTs) are
crypto tokens.
However, unlike fungible crypto
tokens, each NFT is unique,
different, distinguished
from another NFT, and
cannot be
duplicated.
CryptoKitties is an excellent
example of an NFT.
The first game of its kind built on
the Ethereum blockchain,
CryptoKitties is a product of
Dapper Labs, which is valued at
$2 billion at the time of writing
this article.
CryptoKitties was started by a
DJ from Vancouver, Canada, who
loves cats.
Each CryptoKitties token
represents a unique virtual cat
that people can purchase, trade,
raise, and even breed with other
CryptoKitties.
WHAT ABOUT NFTS?
22. Think of them as digital trading
cards that people can get to
mate with each other :)
In reality, an NFT is just a unique
number, an ID. We then attach
information to make it mean
whatever we want it to mean.
When it comes to CryptoKitties,
the ID points to a unique digital
cat with specific characteristics
(colour, eyes, shape, attitude,
breed… etc.)
We can attach those IDs to any
physical or digital asset or thing
and make it so that the
ownership of that ID means the
ownership of the physical or
digital asset.
So when you own an NFT, you
get all the benefits from that
ownership of the
physical or digital
asset it
represents.
So a Non-
Fungible Token
is:
•Proof of ownership of
a real or digital asset
• A unique ID number
• All the identifiable
characteristics of the
asset
• All the rights and
privileges that come with
ownership
• Coded, packaged,
encrypted using
cryptography
• Recorded and tracked on
a blockchain
Dragon
#896775 Gen 9
Snappy Cooldown (30m)
Buy now price
600 ETH
$999k+ USD
23. 1910, Girl with a Mandolin (Fanny Tellier)
Oil on canvas, 100.3 × 73.6 cm
Museum of Modern Art, New York
24. Many will live their life without
the prospect of seeing a Picasso
in real life, but with tokenization,
it is possible to change that.
Picasso’s masterpieces are in
short supply and cost a fortune.
The cheapest drawings are worth
hundreds of thousands of
dollars, and the most expensive
was sold for $179 million.
So if we want to make a Picasso
masterpiece available for many
to own and enjoy the return on
their investment, we must
tokenize it.
That’s one way, but if the owner
of the Picasso is not willing to
share its ownership, they can
still:
• Sell the rights to 100 high-end
prints in real size; each can be
represented by an NFT called
PicassoReal.
• Sell the rights to 500 high-end
prints in a smaller size; each
can be represented by an NFT
called PicassoSmall.
• Sell the digital right to own a
digital version of the painting
that can be represented by an
NFT called PicassoDigital.
If you decide to own a high-end
print, say print 34/100, you also
receive an NFT called
PicassoReal proving that you are
the owner of that print.
You can verify that the owner
didn’t issue more than 100
PicassoReal tokens and find out
how many were sold.
You can choose to hang on the
print and sell it later for a higher
price. When you do, you also
transfer the ownership of the
NFT to the person who bought
the print to prove they are now
the rightful owner of the print.
However, if someone got the
print illegally or created a fake
print, they can’t prove the
ownership since they do not
have the NFT representing that
print.
WHAT’S POSSIBLE WITH
NFTS?
25. are getting anywhere between
30–50% to do that.
Fast forward 10–20 years, and
you are freaking Picasso; your
paintings are selling for millions
at auctions.
Awesome, right?! No.
You don’t see a penny of those
millions because you do not own
the art being sold, you don’t
know who owns it, and you have
no way of tracking it.
In yesterday’s world, artists and
creators were beholden to
industry, intermediaries, and
platforms and had to adhere to
their terms and conditions.
If Picasso was starting his artistic
journey today, he could use NFTs
to tokenize his artwork, be it
physical or digital.
And as his name gains more
recognition, he can keep track of
all his artworks as they are being
sold and traded. And through it
all, he can earn royalties, sell
directly without paying any
commission to brokers or
galleries, and he can enforce a
specific usage for his work, so it
can’t be displayed, sold, or
traded without his permission.
WHY ARE CREATORS
AND ARTISTS EXCITED?
Picasso in 1904.
Photograph by
Ricard Canals.
Imagine you are Picasso in your
early years, you are still
unknown, and to earn some
income, you sell your paintings
and artworks for whatever
people are willing to pay you.
A few years pass by, you gain
some publicity, and now you
have some galleries brokering
the sales of your artwork. They
26. Using NFTs, artists get paid,
continue to get paid and
maintain control over their work
and creations.
Put simply, NFTs give the power
back to artists and creators.
With proof of ownership, you can
do quite a lot:
Sell anything that someone else
finds valuable — Jack Dorsey is
auctioning his first tweet
ever as an NFT, and at the
time of this writing, it’s
worth over $10 million!
Earn royalties on what you own
and what you create — All
EulerBeats original owners will
earn 8% of the revenues on each
print sold of the original.
WITH PROOF OF
OWNERSHIP, YOU CAN
DO QUITE A LOT
Celebrate with your customers
and reward them - Taco Bell
celebrated the return of potatoes
to its menu with taco NFTs that
sold out in minutes. Now, they’re
reselling for thousands of dollars.
27. Prove your ownership anywhere
and everywhere as the value of
the assets appreciates —
CryptoPunks have sold for a
cumulative $43 million.
28.
29. According to NonFungible.com,
the largest database of
blockchain gaming and crypto
collectible markets, more than
128,226 sales took place with a
staggering volume of over $185
million.
These include digital art, digital
music, virtual real estate, VR
wearables, gaming assets,
blockchain domain names,
luxury goods, and more.
There are many NFT creation
(minting) marketplace platforms,
exclusive membership-only
platforms and do-it-yourself (DIY)
platforms.
• Nifty Gateway teams up with
Top artists and brands to
create collections of limited
edition, high-quality Nifties,
exclusively available on their
platform.
• SuperRare is a marketplace
for digital works of art from
leading artists and creators
around the world.
• OpenSea is a peer-to-peer
marketplace for the biggest
collection of rare digital items
and crypto collectibles.
• Rarible allows digital artists
and creators to issue and sell
NFTs. Rarible is also a
marketplace.
THE NFT MARKET
30. When we first got the internet,
everyone predicted video
conferencing. It took us 40 years
and a global pandemic to get
some decent video conferencing,
and we are still not there!
What no one predicted is the rise
of Facebook, TikTok, Uber, and
Airbnb.
Innovations enabled by
blockchain technology free the
internet from the grip of
centralized power-hungry
corporations. It gives us the
power to decide what matters to
us, what we value, what we are
willing to pay for, and how to pay
for it.
Soon everyone will be
collaborating to create infinite
digital artwork like Beeple’s
opus. Created over 5,000 days,
the collage is the first purely
digital artwork (NFT) ever offered
at Christie’s. It sold for…$69m
USD!
Bands like Kings of Leon will
release their albums as an NFT
so their fans can unlock all kinds
of special perks like limited-
edition vinyl and front row seats
to future concerts.
And creators who go viral for a
meme like Nyan Cat can enjoy
more than clout and followers
and earn six figures for their
work.
CAN HISTORY HELP US
PREDICT THE FUTURE?
Beeple’s opus.
Created over 5,000 days, the collage is the
first purely digital artwork (NFT) ever offered
at Christie’s. It sold for…$69m USD!
31. If you feel overwhelmed and do
not get what the hype is all
about, you are justified. Most of
what I read out there just takes
for granted that non-fungible
tokens are the greatest thing
since sliced bread because, you
know, blockchain and stuff,
artists are getting paid, and it will
all work out; who cares if it’s just
hype.
The problem is, as you can
probably tell from the length of
this article, it’s quite challenging
unless you know everything
we’ve discussed so far to fully
explain NFTs and their impact.
FINAL WORDS
32. In a few years, people
will be using NFTs without
the need to understand
how they work. Just think, out
of all the people using email,
how many understand how it
works?!
Tokenizing assets may seem like
the logical move that goes along
with the progress and
advancement of technology.
However, considering the
challenges of implementing a
technology as complex as
blockchain, still in its early stages
of development, established
markets require more than the
“newer is better” argument.
Whether the NFT hype continues
or goes away, they are here to
stay as a vital component of the
new blockchain world taking
shape right in front of our eyes.
There may be opportunities to
make money with NFTs.
However, as an innovation that’s
still in its infancy, there is much
to explore in the coming years.
THOSE WHO ARE WILLING TO GO BEYOND
AND INVEST IN LEARNING AND EDUCATION
WILL PROBABLY BE THE NEW WORLD’S
BIGGEST WINNERS.
