Understanding NFTs using Alchemy | SrishCodes

Hi everyone, welcome back to SrishCodes where I teach you interesting tech concepts that you should know about as a current or aspiring software developer. Today I will be sharing with you about something a little different - NFTs and some interesting start-ups in this space.

Introduction to Alchemy

While everyone is focused on the earnings results of Big Tech companies, a blockchain start-up called Alchemy announced it had raised US$80 million through a Series B funding round. This brings the valuation of Alchemy to US$500 million in just eight months. Existing backers include Coinbase, Samsung, Stanford University, and a number of high-profile individuals such as Charles Schwab, and Yahoo co-founder Jerry Yang.

Alchemy is the middleman that sits between blockchain infrastructure and apps that users interact with. They provide developers with the tools they need to create mainstream blockchain applications. According to CNBC, Alchemy is at the center of the recent frenzy in NFTs and says its customer base doubled in Q1. It is said to power more than $30 billion in transactions.

While NFTs have been the key growth driver for the start-up this year, Alchemy's co-founder Nikil Viswanathan says they are not dependent on a single industry - from NFTs to decentralized finance. Even though Alchemy is not focused solely on NFTs, in this article I will be going over the basics of NFTs.

What is an NFT?

NFT stands for "non-fungible token", which is a term used to describe a unique digital asset, whose ownership is tracked on a blockchain. Really anything that can be uniquely identified can be an NFT, hence the term "non-fungible". For example, two bitcoins (hypothetically speaking) are fungible. Two one dollar bills are fungible. NFTs have the same properties of bitcoin but they are unique. So everything ranging from digital goods like virtual land and art, to physical assets like real estate and clothes can be NFTs.

What are the benefits that NFTs provide?

Tracking of ownership

In the physical world, there is a third-party bank or registry of the state or city that needs to be maintained for ownership of real estate you purchase. So they are in control to track the change of ownership of this property. In bitcoin, there is a public, decentralized ledger where no one party is in control. Each individual owner is able to verify their ownership using cryptography. Instead, middlemen track ownership for people and they take fees for the service.

Similarly, NFTs can be plugged into this decentralized system to be able to trade them with anyone in the world instantaneously. They are mostly built on Ethereum. Unlike the real world where resale value of art does not profit the original creator, NFTs can programmatically send a portion of the resale value using smart contracts back to the original creator anytime the NFT changes hands.

To give you an idea of the power of this capability, let's use an example. A song that is an NFT can now be used anywhere, without any copyright restrictions. It's smart contract can then programmatically send, for example, 5% of the ad revenue generated from the video it is used in and send it back to the owner. This is automatically enforced and now these NFTs become income generating assets, instead of being mere collectibles the way they are today.

Transparency of ownership

Another property of blockchain is that it is totally automated and totally transparent. The change of hands of an NFT can be seen by everyone, and as a result of this, we can build a history of the interactions people have with the NFT. For example, I can copy an image and paste it somewhere else and the history of the image is not captured. This is essentially the power of the Internet. Now when there are millions of copies out there, the value of the image reduces. The ownership of an NFT, on the other hand, can become more valuable simply because of who has owned it in the past. Now the value of the art, be it an image or a GIF, has value. And what this creates is the complete opposite of the Internet is that the more the NFT exchanges hands, the more valuable it is.

A common argument is, well I can still see the image so why should I pay for it? Well there is value in ownership. Simply seeing a beautiful painting in a museum does not give you the right to own it.

Are social tokens NFTs?

Social tokens are a broad category of tokens that are issued by individuals or communities. Social tokens can be NFTs, for example a creator can issue some unique piece of art directly to their fans. They enable the creator economy by enabling creators to engage with their fans directly.

Social tokens for artists

In fact NFTs can be used for crowdfunding for artists. Before they even create an artwork they can give out these limited amount of NFTs and buyers can then exchange the NFT for the piece of art. Now if this is starting to sound like Kickstarter or GoFundMe, then yes that is exactly what this sounds like. Here's the difference. In Kickstarter, the buyer's capital is tied down until the creator releases the product. But in the case of NFTs, the NFT becomes like a financial asset that I can then sell to someone else before the product is released. The creator can also get a cut as a result of this change of hands.

Social tokens can be sometimes fungible tokens, where they can be traded and exchanged and are not unique. If you are confused, you are not alone. In an a16z podcast, they explained that the reason fungible tokens and NFTs have a blurry line between them is because:

• You can take an NFT and turn it into fungible tokens by fractionalizing it
• You can then make those fungible tokens into a social token

Recent NFT sales

Now that we have a basic understanding of NFTs, let's take a look at some of the recent NFT sales.

• An NFT by the artist Beeple sold at Christie's for over $60 million
• Dude with Sign NFT Collection
• NYT Column as an NFT for $560,000
• "Disaster Girl" meme as an NFT for $500,000
• Nyan Cat NFT for $590,000
• Twitter CEO Jack Dorsey's first tweet for $2.9 million

Back to Alchemy

As mentioned earlier, Alchemy enables developers to build the ecosystem of applications necessary for mainstream blockchain adoption. Kind of like the Amazon Web Services of the blockchain industry as several reports have called it.

Alchemy plans to use the new capital to expand its developer platform "to support new chains", Viswanathan said. "We also expect to 5x the team this year." Their current team has only 22 people. In addition, Alchemy has partnered with Flow blockchain to expand its reach.

This space is only getting bigger. There are a couple of other blockchain start-ups that are increasingly gaining interest.

• BlockFi, a financial services company for crypto market investors had closed $350 million Series D funding that valued it at $3 billion.
• Chainalysis, a blockchain analysis company, revealed the close of $100 million in Series D financing, which doubled its valuation to over $2 billion.

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This is a little different from my usual posts, so let me know if you would like more posts like this! Make sure to follow me and subscribe! Until next time

Photo credits: Unsplash