Non-Fungible Token

Financial Markets


Arshia Homafar

December 2021


What is cryptocurrency?

Cryptocurrency is a digital currency invented in 2008 by an unknown person to allow people to make online payments securely. The first token or coin used in this system was bitcoin, and since its introduction, it has had a tremendous rise in price and popularity within society. Bitcoin has had a significant impact on the whole cryptocurrency concept since then. After more than one decade, we have different types of cryptocurrencies and thousands of coins known as altcoins.


One of these decentralized altcoins, which reached a high degree of popularity among the users after bitcoin, is Ethereum. The main reason is more than being a coin for online payments over the blockchain platform. The main advantage of Ethereum is that it enables the deployment of smart contracts and dApps, without any third party involved in the online environment.

But over the past recent years, we heard about one more exciting concept and might be the future of this whole system. NFTs are a new concept getting more and more popular each day because of the vital role it plays in especially entertainment industry. In this article, we will go more deeply into the infant trajectory of NFTs.



What is NFT?

NFT, or Non-Fungible Token is a new type of cryptocurrency built on the Ethereum standards suitable for identifying something or someone in a unique way. This type of cryptocurrency gives an opportunity, especially to digital creators, to earn profit from their assets such as videos, images, arts, etc. The owners can sell their works directly to a buyer, and also, with NFTs, there is a possibility to earn royalties every time a former buyer sells the work to a new buyer. This is a new way for artists to protect their intellectual property (IP) with the unique characteristics of this whole system. The NFT market has great potential in the cryptocurrency market; however, it is still in its early stages and needs more development.



How does it work?

There are two different schemes for NFT protocols, which generally work the same, but the hierarchy is separate.


Source: Non-Fungible Token (NFT): Overview, Evaluation, Opportunities and Challenges (Tech Report) by Qin Wang, Rujia Li, Qi Wang, Shiping Chen


One approach is from top-to-bottom, which consists of the NFT owner and the NFT buyer, a typical course designed to build an NFT from the initiator and sell it to an NFT buyer. The following approach is from Bottom-to-top which there is an NFT template, and every user can create a unique NFT.


Top-to-Bottom: Here, the owners initiate the workflow and check all the inputs to be correct (NFT Digitize). Then they digitize and store the raw data into external or internal storage (NFT Store). The owners then sign the transaction, including the hash data, and send it to a smart contract (NFT Sign). The smart contract receives the data and starts the mint and trade process with a Token Standard (NFT Mint&Trade). When the transaction has been confirmed, the NFT will link to a unique blockchain address that stays forever (NFT Confirm).


Bottom-to-Top: Here, the general idea is the same, but the difference is that the buyers can act as the owners and initiate the process again. In this approach, the project owners form a template by the smart contract to set up some basic rules. Once buyers buy the NFT, they can customize the NFT and re-sell it again. After that, the process is the same as the former approach.



NFT has unique characteristics that distinguish it from other cryptocurrencies, such as verifiability, transparent execution, availability, tamper resistance, usability, atomicity, and tradability. However, some security issues related to the NFT system can be covered with proper solutions. You can find some of these issues in the table below with the corresponding solutions.



Source: Non-Fungible Token (NFT): Overview, Evaluation, Opportunities and Challenges (Tech Report) by Qin Wang, Rujia Li, Qi Wang, Shiping Chen



Of course, every infant system has some potential issues which with time, we can overcome these issues and obstacles with the proper response. This new NFT system offers different opportunities in different fields; that’s why some people call NFTs the future of cryptocurrency. These suggested potentials are opportunities to boost the gaming industry and virtual events, protect digital collectibles, and inspire the Metaverse, which is a whole new concept that cannot fit into this article and needs a deeper investigation.

In this article, we could generally cover the NFT technology in the blockchain market and some of its characteristics, and how it can re-shape the digital assets market in a way more and more, people can benefit from its potentials.




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