A Preliminary Study on Non-Fungible Tokens - Mechanisms and Markets

Abstract

The rise of Non-Fungible Tokens (NFTs) has driven the rapid development of blockchain applications and the emergence of the trading market. NFT rapidly becomes popular in the marketplace where traders can exchange the ownership of virtual assets, including artwork, digital video, and even Twitter articles on the internet. NFT brings new concepts and innovations to blockchain technologies, and the integration of blockchain and smart contracts makes transactions with decentralization, automation, openness, and transparency. This decentralized system, without third-party interventions, completely records the transaction data, which is secure and transparent. With the ERC721 contract, every NFT is a unique and unmatched individual asset. Both sellers and buyers can conduct the transactions and transfer the ownership of NFTs through the content stipulated in the smart contracts. The process only requires one mobile device, which subverts the previous transaction method on art and digital commodities.
This article discusses the history and core technologies of blockchain and smart contracts behind NFT and its marketplace. First, we reviewed the historical transaction records and trading platforms of NFTs. Then, we analyze the emergence of the NFT market using data science, including the capital flow and the scale of the primary and secondary markets. Besides, we study the transaction sales, number of transactions, average price, and active wallets of each category of NFT individually to explore their development of the primary and secondary markets as preliminary research on significant commercial applications.