While NFTs ("non-fungible tokens") typically take the form of sellable digital art pieces, NFTs can be so much more. NFTs are unique, often one-of-a-kind, digital files (usually images, photographs or short videos) that use blockchain technology to establish proof of ownership. In general, NFTs are created ("minted"), purchased from the minter, and then (where allowed) re-sold by collectors in secondary markets. Depending on the NFT license agreement, NFT owners may obtain the right to display or commercialize their NFTs and, in rare cases, the right to participate in specific real-world experience events. Of note, NFTs may afford their owners the right to use NFT dApps (short for "decentralized applications") or may represent user participation in such dApps.
What is a dApp?
dApps are applications that operate automatically through smart contracts on a blockchain (e.g., Ethereum). User dApp activities are transmitted on the relevant blockchain via Internet Service Providers to other users. In contrast, typical applications (e.g., Facebook) operate on a physical, centralized server, through which all user activities are stored and transmitted.
In addition, dApps have several benefits when compared to centralized apps. First, dApps are often more trustworthy than centralized apps because their codes are unchangeable and public. Unlike centralized apps, dApps are not modifiable, consistent with all smart contracts and blockchain-related activities. Further, dApp codes are open source, which means that the source codes (including the smart contract terms) are made freely available to the public. dApps are autonomous (i.e., there is no entity controlling the app), making them very difficult for federal and state governments to regulate.
What is an NFT dApp?
An NFT dApp is a type of decentralized application that incorporates the use of NFTs into its software. For example, Axie Infinity is an NFT dApp valued at over $3 billion. The Axie Infinity dApp is a Pokémon-style game where the Pokémon-type fighting characters take the form of NFTs. To play the Axie Infinity NFT Game, character NFTs must be in player crypto wallets in order to participate and breed NFT characters. In addition to playable characters, NFTs in such apps can include tokens and coins that users may digitally insert/spend to play a game.
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