NFTs For Dummies. Tiana Laurence
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you to sell your assets independently of a third party — they’re becoming popular because centralized exchanges are vulnerable to theft. Exchanges run by a company require the system to be controlled by a single party, negating the power of blockchain and turning it against the user. If an item is stolen from a company exchange, it’s nearly impossible to retrieve it again.
Enabling smart contracts
NFTs enable decentralized exchanges via smart contracts — computer scripts that run on those ledger nodes with access to data about the NFT. For example, when you purchase a CryptoKitty, you purchase a piece of unique digital art that has been coded with ownership that automatically changes when payment is made — all without the need for a third-party agent. This system reduces risk while expediting transactions by eliminating intermediaries. Similar to the email example we mention earlier, exchanging ownership instantaneously with anyone in the world is now possible.
Creating digital scarcity
The CryptoKitties team addressed the concept of digital scarcity for singular items by way of their digital collectibles. No two CryptoKitties are alike — each one is unique. Digital goods, which aren’t a new concept, have seen real-world valuation. For example, World of Warcraft’s gold farmers use the Steam platform’s online marketplace, where users can buy and sell in-game items across their PC’s video game collection. However, this niche, which was limited to video games, lacked the features that blockchain affords. You can find numerous examples of hacking or cheating or developers influencing the ecosystem.
Solving problems
Adding NFT to the mix has changed how people perceive digital collectibles, as evidenced by the intense interest shown in digital collectibles such as CryptoPunks and other NFTs. A digital art enthusiast paid a whopping $69.3 million for the NFT named EVERYDAYS: THE FIRST 5000 DAYS. The Genesis CryptoKitty NFT, the rarest in existence, sold for 246.926 Ether.
The size, scope, and long-term pedigree of these NFTs alleviate fears associated with cryptocurrencies, as the following list makes clear:
The central issuing authority problem: When digital collectibles are created and issued and the market identifies the rarest or the most popular collectibles, nothing stops the creator from simply creating more. When this happens, it diminishes the value of the original collectibles, potentially making them worthless.
The provider dependency problem: The existence of a digital collectible is dependent on the presence of the issuing authority. If a digital collectible is created and the initial creator ceases to exist, your digital collectibles also cease to exist. NFTs, on the other hand, live on distributed ledgers that replicate. If the token economics of the blockchain are in line with the network's nodes, your NFT is safe. Most NFTs just contain the smart contract, which in many cases points to a URL (huge risk, since the host could be shut down or the content changes on their end). The image might be too large or it might simply be too tedious to integrate.
Purpose and function of digital collectibles: Physical collectibles are popular because of their intended purpose. If you collect art, for example, it can be worth a lot of money, and it serves a purpose by hanging on your wall as an item of beauty and status.
With the help of blockchain technologies, these problems have been solved, which has made people far more willing to invest in digital collectibles outside the niche of video games. If NFT digital collectibles hold their value the same way a physical collectible does, an entirely new world of collecting will come to life.
The game mechanics of CryptoKitties
Dapper Labs’ CryptoKitties are digital, collectible cats built on the Ethereum blockchain. They can be bought and sold using ether, the native cryptocurrency of Ethereum. You can breed your cats to create new cats with exciting traits and varying levels of cuteness.
At the launch in 2017, 50,000 Gen 0 cats, known as Clock Cats, were created with a smart contract on the Ethereum blockchain. (Gen 0 means that they were the first cats created.) Existing as programs stored on a blockchain, smart contracts have preset conditions and the terms of a contract between the buyer and seller written directly in the code. For more on smart contracts, see Chapter 9. Clock Cats were distributed automatically via smart contract at a rate of one cat every 15 minutes. Each cat was sold at auction.
A CryptoKitty is unique in appearance, with distinct features. Its phenotype is determined by its immutable genes (genotype) stored in the smart contract. In fact, all the fundamental game mechanics of CryptoKitties are tied to smart contracts. By gamifying blockchain technology, the CryptoKitties team normalized previously esoteric concepts and empowered users with essential fluency in blockchain technology. Now you get the chance to gain the same knowledge.
By giving you the ability to breed your very own cats, the kitties became more than just a digital collectible. They are personal. [See the later section “Collecting, Breeding, and Selling Your Very Own Non-Fungible (Crypto)Kitties,” to learn more about these fun digital felines.] The CryptoKitties team also creates a self-sustaining community where users can create new collectibles and trade them on the Ethereum blockchain.
What’s In Your Wallet? Setting Up MetaMask
MetaMask is a free browser extension and smartphone app that allows you to interact with the Ethereum blockchain. It lets you log in to dApp websites with your wallet keys and send and receive coins from your cryptocurrency wallet. To learn about other wallets and decide which is the best for you, see Chapter 4.
To set up a MetaMask wallet, follow these steps:
1 Navigate to the MetaMask website at https://metamask.io.You can see the support that MetaMask gives you. It works on Chrome, Firefox, Brave, and Edge browsers. At the time of writing, it doesn't support Safari, but it does offer an iPhone app as well as an Android app. We’re using Chrome for this example.
2 Click the Download Now button and then click Install MetaMask for Chrome.
3 At the Chrome web store, click Add to Chrome.When your browser is done downloading MetaMask, you see the option to either import an existing wallet or set up a new MetaMask wallet.
4 Click the Add a New Wallet link.MetaMask asks you to send some data to them. It won’t reveal your identity, but it’s used to make the service better. You can opt out if you want to.
5 Create a password.This is a password just for MetaMask. It isn't the recovery phrase or the private keys for your wallet. The password is secondary security.You’re taken to the security-phrase screen, where it prompts you to write down a recovery phrase. Do not skip this section.
6 Write down the words clearly, and store the paper in a safe place.You may want to go so far as laminating your paper and storing it in a vault. You need the recovery phrase if you lose your password or device.
7 On the next screen, confirm the recovery phrase so that MetaMask knows that you wrote it down properly.After you have correctly entered the recovery phrase, you can get into your MetaMask wallet. The MetaMask team is always making updates. Check back frequently to see what they have added.
8 Within your wallet Navigate to Settings and click the General tab to change your currency conversion and choose the primary currency.This