NFT Transforming the Digital World: A Complete Analysis from Applications to Classifications

Many people are still somewhat unfamiliar with NFTs, but these unique digital assets are changing our understanding of virtual ownership. NFTs are essentially digital certificates on the Blockchain, each one unique, representing the ownership and authenticity of a virtual or physical item.

What is NFT? Why are they so important?

Unlike interchangeable cryptocurrencies like Bitcoin or Ethereum, each NFT has unique characteristics. These tokens are primarily built on the Ethereum blockchain, but also exist on other public chains. They can be traded on various markets, providing creators and collectors with a new way to manage virtual property.

From digital art to game assets, the application range of NFTs has become quite extensive. This diversity has also led to the emergence of different classification systems.

Classification of NFTs by Application Scenario

NFT examples are diverse and can be categorized into the following types based on their specific uses:

Avatar and Identity NFT The earliest case was CryptoPunks launched in 2017, followed by the Bored Ape Yacht Club (BAYC) which further expanded this field, incorporating not only virtual avatars but also club membership cards and representations of physical goods.

Artworks and Creative Content This is the most active area for NFTs. Painters, illustrators, and animators can tokenize their works, establish ownership, and profit directly from the sale of their works. This opens up new revenue streams for creative workers.

Music and Audio Musicians can tokenize songs, albums, and even behind-the-scenes content. Through NFTs, artists can bypass intermediaries to distribute music directly to fans and benefit from secondary sales royalties.

in-game assets Weapons, armor, and other virtual items in games can all be tokenized. Decentraland Wearables is a typical example, allowing players to purchase virtual clothing and accessories.

Virtual Real Estate In the metaverse and virtual worlds, players can buy, sell, and trade virtual land and buildings. These digital real estate properties fully belong to the holders in the form of NFTs.

Practical NFT NFTs can also be associated with various services and goods—whether in physical or digital form. They can provide access to physical products, professional trading tools, ticketing services, exclusive content, or memberships.

Identity and Verification NFT is changing the way authentication works, enhancing privacy protection through decentralized solutions, allowing users to have more control over their personal data.

The gaming industry is also leveraging NFTs for content monetization, player rights protection, and exclusive event access. With technological advancements, new NFT use cases continue to emerge.

Classified by Interaction Level

Static NFT The properties of these types of tokens remain unchanged, such as digital artworks, collectibles, and CryptoPunks. They maintain their original form throughout their entire lifecycle.

Dynamic NFT These types of assets change over time, often influenced by external data sources. For example, Chainlink's VRF NFT, the virtual creatures in the World of Ether project have variable attributes that dynamically adjust based on user interactions and the breeding system.

Interactive NFT These assets allow users to interact directly in games or virtual spaces. Creatures in Axie Infinity can battle and breed, while virtual real estate in Decentraland can be freely developed and customized by owners.

Differences in Token Standards

ERC-721 Standard This is a standard specifically designed for NFTs on Ethereum, ensuring the uniqueness, scarcity, and secure ownership, transfer, and management of digital assets. CryptoKitties is a classic application of this standard, allowing the collection and breeding of virtual cats with unique characteristics.

ERC-1155 Standard Unlike ERC-721, this standard supports the creation of NFTs and fungible tokens within a single smart contract. It simplifies the processes of trading, deploying, and managing. The Sandbox (SAND) token is an example based on this standard, allowing users to create, own, and monetize digital assets in the virtual world.

Other Public Chain Options In addition to Ethereum, several public chains such as Flow and Polkadot have launched their own NFT standards, offering better scalability or lower cost alternatives.

Licensing and Rights Model

Open License This model grants holders extensive rights, allowing them to display, copy, modify, and redistribute the underlying assets. This includes the freedom to create derivative works, exchange with others, and reuse across platforms. CryptoPunks and BAYC have adopted this model, promoting creative collaboration.

Restricted License Such licenses impose strict usage restrictions, typically retaining exclusive rights by the original creators or rights holders. Copying, commercial use, or modification of content is prohibited without permission. NBA Top Shot adopts this model, where collectibles can only be traded within the platform ecosystem.

Mixed License This approach seeks to balance between creators and collectors, allowing for certain usage rights and commercial applications while protecting some original rights. This flexible model promotes collaboration among all parties.

Conclusion

The application prospects of NFT are still expanding, with a range of uses from video films to domains, fashion, photography, literature, and sports. The scope of application is continuously broadening. Although the technology is still in its early stages, NFTs have already proven their potential in redefining digital ownership and creating value. When exploring this opportunity-filled field, it is crucial to carefully assess risks and invest rationally.