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LearnAcademyCrypto use casesLesson 2: Blockchains and NFTs

Lesson 2: Blockchains and NFTs

After completing this lesson, you will be able to:
Know why Ethereum is the blockchain of choice for NFTs and DeFi apps.
Understand the relationship between non-fungible tokens and real-world or digital objects.
Know different ways that NFTs are used.
Know a key difference between NFTs and cryptocurrency tokens.
Understand how NFTs help players customize their game-playing experience.

Welcome to the second lesson in Kriptomat Academy’s “Blockchain Use Cases” course. In this lesson, we’ll take a look at NFTs and how they work.

Non-fungible tokens – “NFTs” – are like crypto coins with serial numbers so individual tokens can be tracked. They were implemented first on Ethereum after similar initiatives were tested on Bitcoin and other blockchains.

  • “Fungible” means interchangeable, like most manufactured goods. NFTs are non-fungible tokens because each is unique.
  • NFTs work like deeds for digital and real-world property.
  • If the NFT whose serial number is associated with a particular work of art is transferred to your wallet, then you own the art.

The need for NFTs was recognized before Ethereum, and several test projects were launched

  • Colored coins were implemented on the Bitcoin blockchain as early as 2012, but it was not robust enough to last.
  • Colored coins required every party to a transaction to agree to the value of Bitcoins that had been assigned a particular color.
  • If a single participant in a transaction disagreed about the assignment of the Bitcoin to a particular asset, the colored Bitcoin system collapsed.

But the need for NFTs remained. An efficient public register of ownership has proved to be essential in many fields.

  • For example, NFTs can be associated with digital artwork such as jpeg images of individual characters from the Mutant Ape Yacht Club.
  • The images can be bought, sold, and collected. Some people use them as investments.
  • NFTs have also been associated with fractional ownership of works of art by Picasso and other well-known artists. An art lover might buy partial ownership of a Picasso by purchasing a 1,000 euro NFT at auction.

NFTs have many uses

  • They can serve as rewards in a hotel’s customer loyalty program, for instance, entitling the customer to room upgrades or special amenities. Companies like Starbucks, Singapore Airlines, Burger King, and Clinique have all launched NFT-based customer loyalty programs.
  • NFTs issued by a celebrity or sports club could entitle their owners to special seating at performances and games, or a vote in user polls.
  • NFTs can serve as deeds that allow the ownership of any real-world property to be recorded on the blockchain. Because blockchains are immutable, ownership is established until the NFT is transferred to a new owner.
  • In computer games, NFTs are widely used to establish ownership of characters, capabilities, weapons, and other property.

NFTs are not generally available for sale at cryptocurrency exchanges

  • NFTs can be created, bought, sold, and auctioned at NFT marketplaces.
  • Some corporations create their NFTs and marketplaces. For example, the American National Basketball Association sells NBA Top Shot NFTs at an official NBA website.
  • Other NFTs aren’t traded. For example, a restaurant might issue NFTs as part of a Fifth-Meal-Free promotion.

NFTs are essential parts of many games and metaverse implementations

  • In games and metaverse-based apps, NFTs can represent property, locations, and individuals.
  • NFTs are often used as the basis of an in-game digital economy.
  • We will have much more to say about the role of NFTs in gaming and the metaverse in a future lesson.

So – what have we learned?

  • NFTs are like cryptocurrency tokens, but with serial numbers so they are distinguishable from each other.
  • In many common uses, NFTs work like deeds to establish ownership of digital or real-world property.
  • NFTs have found applications in many industries and use cases.

That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test!

What are two ways NFTs are used?

To calculate taxes and to represent Mutant Apes as jpegs.
As rewards in corporate loyalty programs and as personal property in video games.
To represent fractional ownership of great works of art and as legal currency in El Salvador and the Central African Republic.
As documentation of amounts earned and loaned and to represent membership in a sports team’s fan club.

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What real-world document is most like an NFT?

A deed for property.
A marriage contract.
A passport.
The UN’s Universal Declaration of Human Rights.

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How do NFTs differ from other blockchain tokens?

NFTs don’t vary in value.
NFTs are individually distinguishable from each other.
NFTs don’t generate value-added tax when they are bought and sold.
NFTs can be transferred from the blockchain to traditional databases and back.

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What were colored Bitcoins?

An early attempt to associate particular Bitcoins with digital or real-world objects.
Bitcoins of different colors represented large-scale, medium-scale, and small-scale holdings.
Different prices were applied to Bitcoins of different colors by cryptocurrency exchanges.
"Colored Bitcoin" was the working name of the cryptocurrency that we know as Ethereum today.

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How do NFTs contribute to gaming?

They work as treasure boxes that reveal objects of different value when players open them.
They are the basis for in-game objects and player attributes, allowing for the creation of an in-game economy.
They allow developers to set the prices for their games in app stores.
They allow game tokens to be traded by brokers in banks and conventional off-chain stock exchanges.

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