NFTs were created for a reason, and we look into how and why NFTs came to be and how they can revolutionize the cryptoverse.
18 JANUARY 2022
You might be asking yourself, “Why were NFTs invented?” Well, we might not have all the answers, but here are a few points to help explain the reason behind the invention of NFTs.
What problem should an NFT solve?
Everything that has ever been created was created to address a problem. In the case of NFTs, they were developed in order to overcome the drawbacks of their forerunners, which were built on the Bitcoin blockchain. NFTs have evolved to their present state over a number of years.
When "colored coins" were introduced in 2012, it was one of the first times that digital ownership was looked into in the crypto world.
Pre-NFT tokens: Colored Coins
Colored coins were made on the Bitcoin blockchain, while most modern NFTs are tied to the Ethereum blockchain. Colored coins wanted to represent a variety of assets, both digital and physical, much like NFTs. But because of the way the Bitcoin blockchain works, colored coins could only be used if everyone agreed on how much they were worth. So, if just one person in a transaction doesn't agree that a certain colored coin goes with a certain asset, the system falls apart.
Shifting over to the Ethereum blockchain
In subsequent years, there were a number of other attempts at releasing assets on the blockchain. One of these is the peer-to-peer platform Counterparty, where the first meme assets were eventually added to the Bitcoin blockchain. However, it wasn't until these proto-NFTs were moved to the Ethereum blockchain around 2017 that the full potential of linking assets to the blockchain became possible. The Bitcoin blockchain was made specifically for the Bitcoin token ecosystem. The Ethereum blockchain and smart contracts, on the other hand, are much more flexible. As a result, the first NFTs as we know them today could be successfully created and permanently linked to specific assets.
NFTs are a bridge between the digital world and the real world of physical objects
The uniqueness of an NFT also means that it can be a bridge between the digital world of crypto and the real world of physical objects. NFTs offer a tamper-proof record of transactions involving a digital asset and demonstrate digital asset ownership.
In recent years, NFT enthusiasts have started to look into ways to connect NFTs to physical assets as well. For instance, the real estate firm Fabrica has used both NFTs and conventional trusts to enable quicker, safer, and significantly less expensive real estate transactions. In this scenario, NFTs are used to represent real estate. In other instances, well-known clothing and fashion companies like GAP and Nike have released NFTs that include distinctive physical clothing items. This "physical NFTs" market, which consists of a digital NFT component and a connected physical asset, has the potential to grow quickly.
Although it may not have been the issue that NFTs were designed to address initially, it could still play a significant role in the development of this technology in the future.
