From Coloured Coins to Ethereum: The Evolution of NFTs
Have you heard of NFTs? These unique digital tokens have been making waves in the world of cryptocurrency and beyond, but they weren’t created overnight. In fact, NFTs were born out of a need to solve a problem in the world of blockchain tokens.
Let’s start with the basics: everything ever invented came into existence to solve a problem. NFTs are no exception. They were created to address the limitations of previous forms of tokens that were created on the Bitcoin blockchain.
The earliest explorations into digital ownership began in 2012 with the advent of “coloured coins.” These were developed on the Bitcoin blockchain and aimed to represent a variety of assets, both digital and physical, much like NFTs. However, there was a catch: because of limitations within the Bitcoin blockchain, coloured coins only functioned if all participants agreed to their worth. This meant that if a single participant in the transaction disagreed that a coloured coin was linked to a particular asset, the system would collapse.
In the years that followed, there were several other attempts at issuing assets on the blockchain. These include the peer-to-peer platform Counterparty, which eventually saw the first meme assets issued to the Bitcoin blockchain. However, it wasn’t until 2017 when these proto-NFTs were moved to the Ethereum blockchain that the full potential of linking assets to the blockchain became possible.
Unlike the Bitcoin blockchain, which was designed expressly for the use of the Bitcoin token ecosystem, the Ethereum blockchain and smart contracts allow for a much more open-ended approach. This proved to be beneficial to the creation of the first NFTs as we know them today and allowed NFTs to be irrevocably tied to particular assets.
But what makes NFTs so special? It’s their ability to link the digital world with the real world of physical objects. NFTs prove digital ownership and provide a tamperproof record of transactions involving a digital asset. In recent years, NFT enthusiasts have begun to explore applications for linking NFTs to real-world assets as well.
For example, real estate company Fabrica has utilized NFTs along with traditional trusts to facilitate faster, secure, and significantly cheaper real estate transactions. In this case, NFTs are used to represent pieces of real estate. In other cases, popular apparel and fashion brands like GAP and Nike have released NFTs which come with unique pieces of physical clothing. This world of “physical NFTs,” which include both a digital NFT component and a linked physical asset, has the potential for rapid expansion.
So, there you have it! NFTs were born out of a need to solve a problem with previous blockchain tokens, and they’ve since evolved into a versatile tool that can link digital and physical assets. In our next lesson, we’ll explore real-life use cases for NFTs and see how they’re changing the game in various industries. Stay tuned!
