Before we take a deeper dive into the world of NFTs, we must first understand the basics surrounding this new age technology. NFT stands for Non-Fungible Token and are basically digital items and assets having some value, that are stored on a blockchain, adding levels of uniqueness and rarity to them. In terms of uniqueness, everyday blockchain tokens such as Bitcoin and Ethereum are very similar to real money, as they are fungible and can be moved around. The term fungible is the ability of an asset to be traded with other goods or assets of the same time.
The factors that give each individual NFT its uniqueness includes certain metadata and a one-of-a-kind identification number that are bonded with the assets; hence the term non-fungible comes into play, meaning that each NFT carrying a unique ID is irreplaceable. As a result, since each NFT has its own rarity and value to it, interested individuals and collectors seek to acquire it, so when the demand increases, so does its price valuation.
NFTs can have many forms and types and since they are digital items that reflect upon real-world items, NFTs can include exclusive songs, videos, digital art pieces, 3D collectible items, digital cards and even very rare items like real estate.
Ownership of an NFT
Real-world items reflected digitally are tokenized, meaning a unique ID is attached to them, while also fusing the item with a digital certificate to highlight its owner, enabling it to be traded around in the market. By taking advantage of advanced technologies such as blockchain and smart contracts, NFTs can cater a massive number of traders that are interested in these types of items.
Although NFTs can be owned by different individuals, the designer or the creator of that asset can still have the authority over the copyright and reproduction rights, like how physical items in the world work.
Now, the big question arrives, if the NFT is an image, does a screenshot count as ownership? What’s the point of NFTs when one can just screenshot it and keep it? Putting things into perspective, just like the real world, any individual can have a copy of the asset, however the original file or piece can only be held by a single entity.
To better understand this, we can take the example of the declaration of independence of the USA. There are many copies of the original printed, sold and available for display in America, however the original page is kept safe and secure by the government of the United States, as it has the right to own that original document.
In general, NFTs, can be developed, bought or gifted. These digitally unique assets are mostly secured inside of crypto-based wallets which highlight the digital ownership of those assets. Because of their added value and uniqueness, the effort to keep them safe and secure has become extremely important and challenging.
Developing an NFT is mainly called as minting. Minting usually refers to the idea of making a digital item immutable, meaning that it cannot be subject to any change while it is present inside of a blockchain. The process of developing an NFT includes, uploading the digital file on a NFT trade platform, also called as a marketplace, after handling the submission fee. Once the registration has been processed, the digital item will now be eligible for trading activities.
Alongside development, NFTs can also be purchased, letting the buyer have ownership of the asset, which is connected to the blockchain for verification and validity. There are many popular marketplaces for NFTs, but the current most popular platform is OpenSea, which is currently hosting millions of dollars’ worth of NFTs and their creators.
Digital Wallet Access
Before you go out searching the NFT marketplace wonderlands, you first need to obtain a digital wallet regardless of your intentions as a buyer or a seller. A digital wallet is basically a financial trade handling application that operates through mobile devices or a browser extension. Its job is to keep your highly sensitive information like payment information and passwords safe and secure, so they can be instantly used when performing a transaction.
Users can easily pay using digital wallets without having the need to worry about physical cards, using their mobile devices or computers. Because of its accessibility, digital wallets can open a new world of financial opportunities to take advantage of. Many wallet services offer different incentives to users; however, it is important that a trusted wallet service is used to keep assets and private information secure.
Although it is not necessary to grab onto a wallet, however digital wallets provide an easier and safer way to perform transactions, as there is no worry about carrying credit or debit cards.
Another advantage to using digital wallets is that there is no requirement for a bank account, so areas where bank access is difficult can have the privilege of utilizing a financial service, helping them to pay for items they previously could not. Digital wallets can also safe keep other important information such as membership cards, even tickets, flight tickets, hotel reservation, licenses and in some cases, even keys to a car.
Digital wallets powered by cryptocurrencies are known as cryptocurrency wallets, which also have the power to store and secure digital assets like NFTs. Having access to a crypto wallet can conjure many abilities such as signing trades, taking care of balance and gain access to blockchain services and NFT trade platforms. NFT trading platforms do need to collect any payment information about the user since the digital crypto wallet already handles that part.
A crypto wallet consists of two main parts, a public key and a private key. The public key is also known as a wallet address, which basically a unique set of characters that act as an account number, like how standard bank account numbers work. The private key is like a pin code that is responsible for keeping the wallet safe and is extremely confidential, only being accessed by the user. Since the private key is used to authenticate trade, it must be kept safe offline and must not be shared in any circumstance, to keep the assets and cryptocurrency balance inside of a wallet safe.
If by chance, these private keys are leaked, through either a vulnerability in the wallet system or even a hacking attack, there is a chance that precious user assets can be stolen from multiple wallets, depending upon the scale and intensity of the attack.
Moving further, we shall now discuss the topic of custodianship, which is often missed by many. You must be wondering about who has power over the NFT you just bought or minted? This is where the difference between custodian and non-custodian NFT comes into action. The decision of creating a custodial or non-custodial wallet is generally made when trying to gain access to a digital wallet or becoming part of trading NFTs on a certain platform. So, it is important to understand both sides of the perspective in terms of the type of wallet to be chosen.
Custodial Wallet – What Is It?
A kind of digital wallet in which a third party has access to the private key of the wallet account, acting as a custodian for the key to make sure that the account is secure, and the assets stay safe from dangerous players is known as Custodial wallet. Since it is a choice, it is up to the user to figure out if the wallet should be custodial or not. If the user is satisfied with the custodial service and trusts its liability, that means that the use won’t have to worry about the safety and security of handling a private key.
For custodial wallets, these third-party entities keep the user’s private and confidential information. Third parties can include NFT trade platforms, cryptocurrency exchanges or even a dedicated custodian wallet service. Because of their nature, custodial wallets are said to accommodate users and are easy to use. Users do not have to worry about remembering their private key, because it is the job of the third party to take care of it. However, the user must remember how to take the account back in case of a misunderstanding or unfortunate circumstance.
As for downsides, custodial wallets are not so autonomous, plus they are not considered to be used if the user wishes to have an anonymous profile, because to use a custodial wallet, the user must give up private information to the custodian by complying towards the know your customer (KYC) policy of data collection for details like, passport or license details.
What about non-custodial wallets?
A non-custodial wallet is also a form of a digital wallet, but the differentiating factor it carries is that there is no third party involved and the user has full control and access over the sensitive information and private key that the wallet carries. In addition to giving control over information, users also can gain access to every asset and activity on the wallet.
Non-custodial wallets do bring a sense of greater responsibility towards the user, since now it is the user’s job to remember all the account number, passwords and the highly sensitive private key. If the user somehow forgets or losses access to the account information and the private key, then that wallet is not accessible in any way, due to security policies. This makes it less user-friendly, since the polices around data protection are stricter to safeguard assets.
An added advantage to using a non-custodial wallet is having control over the rate at which a transaction is processed. To elaborate further, users can choose the level of transaction processing speed at the cost of higher fee. The higher the transaction process rate, the higher the fee scales.
Following the Standards
As said before, choosing between a custodial or non-custodial wallet is entirely up to the user, depending upon if third parties are to be trusted or not, however another thing to be checked when choosing a wallet is that it follows the proper NFT standard. There are multiple standards for every blockchain. Examples include ERC-721 and ERC-1155 present on the Ethereum blockchain.
NFTs can also be custodial or non-custodial, so the supported token standard should be application for it. BEP-721 and BEP-1155 are standards for the Binance smart chain and are superior to the ones present on the Ethereum blockchain, because the Binance smart chain standards supports both fungible and non-fungible token development and is also way cheaper, because of significantly less gas fee, making it a more attractive option in the eyes of many developers seeking to access or make NFTs.
More on NFT Trade Platforms
NFTs are viable to be bought, sold or gifted using NFT trade platform, commonly known as, NFT marketplaces. As mentioned before, these marketplaces can be custodial or non-custodial, depending upon the policies it follows. Custodial platforms prefer user information to be kept by them, while non-custodial platforms prefer users keeping their personal information to themselves.
Additionally, custodial platforms are quite open to support a large variety of NFTs, since the platform oversees the user data, so there are more options available. Users are required to submit assets to the platform, after which the platform handles the trade. In the case of non-custodial platforms, they are mostly used to handle private trades between users and sellers who wish to remain anonymous, as those platforms do not require KYC checks on users.
NFT Platforms have expanded to become dedicated to a single type, meaning different platforms cater to different types of interest niches. Some prefer to host massive number of users, and some platforms focus on a single genre or NFT type. There can be many types of these platforms such as private invite-only platforms, gaming NFT platforms, sports focused NFT platforms and many others. Each of these various platforms have different policies, functionalities and offerings.
Although Binance smart chain standards might be better, but as of now, the majority of NFT trading platforms like the popular OpenSea is currently being powered by the Ethereum blockchain. The thing to note is that a single NFT platform can be supported by multiple blockchain, but that depends upon the scale and size of the platform. The OpenSea platform is currently supported by chains that include Ethereum, Klatyn, Polygon and Solana, hence proving the point.
There are many other factors that differentiate NFT platforms from one another. An example for this can be certain platforms supporting specific file types and standards to submit an NFT. Additionally, some platforms charge differently than others, so users must also check submission prices.
Knowledge about different wallet types and different NFT platforms can certainly help many individuals or group traders around the world to make better decisions in terms of trading NFTs. Knowing key differences of different types of NFT platforms can help users decided on how they want their private data to be handled. It is up to the users if they are not willing to handle their information or choose a more anonymous side and handle their data by themselves, giving them full responsibility over their actions.
The NFT market is still has a lot of potential stored inside of it and if accessed can create numerous new opportunities for traders to take advantage of, showing their passion for trading in general. According to a report named Global Non-Fungible Token Market Size, Status and Forecast 2022-2028, posted by marketresearch.com, the worldwide NFT market size is predicted to achieve more than $7.5 billion by the year 2028, coming from a massive $1.59 billion market worth reported last year.
Additional information revealed that North America is currently leading the NFT market with a massive worth of more than $517.9 million, having around 32.5% of the market. In comparison, Europe’s NFT market is the runner up, having $479.5 million with 30.15% market and as of now the Chinese NFT market holds around $91.85 million, but according to predictions, this value is said to increase by more than 6% in the year 2028.
Talking about the current situation, NFTs aren’t having the best of days, however the potential is still growing, as many industries like the gaming industry have also started to incorporate NFT items inside of their games for trade.
Although not accepted well by the community, NFTs are still standing quite firm ground in gaming and many other popular industries, shifting people’s focus to obtain digitally unique assets that are being made exclusively by many popular artists and influencers from around the world.
Popular artists around the world have started to release limited one-of-a-kind exclusive items as NFTs, to gain support and host their history and presence in the industry. Items include music albums, profile pictures, special artworks, trophies, cards and many different sets of items in the form of collections to attract and give both individuals and collectors a chance to obtain them.