The Application and Implementations of Cryptocurrency in NFT

Hongxi Li

1,*

and Jiayuan Li

2,†

Beijing Normal University (Zhuhai), Zhuhai 519087, China

Southwest Jiaotong University, Chengdu, 611756, China

†

These authors contributed equally

Keywords: Cryptocurrency, Blockchain, NTF, Web3.0.

Abstract: Contemporarily, world is shifting from traditional wallets to digital wallets, i.e., software-based programs that

could securely store user payment information. Since the launch of the first Bitcoin software in 2009, the

cryptocurrency market has expanded rapidly and is increasingly recognized. At the same time, NTF will usher

in rapid growth in 2021. Nowadays, there is a strong intersection between cryptocurrency market participants

and NFT market participants, and the application of cryptocurrencies in NTF has gradually become a research

hotspot. The core of modern finance is to realize simple and efficient value transfer. Web3 based on block-

chain technology is the evolution of digital infrastructure, which improves the efficiency of value transfer and

will create greater development space for financial and other services. This article deeply analyzes the core

of the NFT algorithm, lists the common applications of Crypto in recent years, and then takes the pet store

demo created by imitating the NTF platform as an example, uses the truffle development framework to de-

velop a decentralized dApp project, and creates exclusive and irreplaceable NFTs for pets, then use Web3JS

to connect metamask to create a cryptocurrency wallet for transactions. From the perspective of the dog rescue

community, explore the current application of cryptocurrency in NTF, analyze the limitations of current ap-

plications, and predict the future development trend of cryptocurrency.

1 INTRODUCTION

The blockchain industry has experienced rapid devel-

opment and changes in recent years: from budding in

2017, smart contracts in 2018, to DeFi in 2020, and

in 2021, NFT is undoubtedly the hottest topic. NFT

made its debut in 2015. In 2017, the first pixel avatar

project called CryptoPunks was launched. Six months

later, the NTF project Cryptokitty quickly became

popular, and then people started a zoo on the

Ethereum blockchain, and virtual rabbits and virtual

dogs were launched one after another. In 2021, NTF

will usher in rapid growth. According to statista (Sta-

tista, 2022), the total sales involving a non-fungible

token in gaming, art, sports and other segments has

grown from $36.77 million in 2018 to $13,981.9 in

2021.

Cryptocurrencies are as popular as NFT, but dif-

ferent from NFT as NFTs cannot be traded or re-

placed with each other. Beyond that, NFTs have an

odd relationship with cryptocurrencies. When the

NFT market was small, its price action relied on the

crypto market, but as they matured, they kept break-

ing away. Before the advent of cryptocurrencies,

there have been many people trying to create crypto-

currencies, and most of them are mainly facing the

problem of double spending. They must ensure that

digital assets can only be used once in order to pre-

vent copying and counterfeiting of digital assets. Ten

years ago, Satoshi Nakamoto published a white paper,

which introduced the powerful functions of the

Bitcoin blockchain network, and Bitcoin entered our

society as the first cryptocurrency vision (Nakamoto,

2008). On July 30, 2015, the Ethereum network was

officially launched. As the second-largest cryptocur-

rency by market capitalization, Ethereum brings

smart contracts and decentralized finance to the world

of cryptocurrency. These achievements consent

Ethereum to build an entire ecosystem on its block-

chain, while hosting its own native currency: ether,

ETH. A token is also a cryptocurrency that does not

have its own specialized blockchain, but uses the

blockchain of other crypto assets. Since then, the

cryptocurrency world has never stopped. The rise of

cryptocurrencies has also made them more and more

recognized and used. Today, Central Bank Digital

Li, H. and Li, J.

The Application and Implementations of Cryptocurrency in NFT.

DOI: 10.5220/0012035800003620

In Proceedings of the 4th International Conference on Economic Management and Model Engineering (ICEMME 2022), pages 511-516

ISBN: 978-989-758-636-1

 2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)

511

Currencies (CBDCs) are being created and compa-

nies are showing incremental interest in investing in

cryptocurrencies and blockchain. Clearly, such

events will fuel the rapid expansion of the cryptocur-

rency market.

Recently, the usage of cryptocurrencies in NTF

has gradually become a hot research object. The fol-

lowing are some case studies. The first example is

about DeFi, where DeFi platforms provide users with

a way to borrow, save or trade cryptocurrencies with-

out manual transfers and arbitration in the event of

disputes. GameFi brings finance into new territory,

where playing and creating in virtual worlds is a via-

ble way to invest, make money, and contribute to pop

culture. If NFT games make various items in the

game have their own value, then DeFi provides a way

to let these values enter the hands of players (Park,

2022). In addition, encryption has been applied to the

media sector, with WhatsApp in Dubai allowing users

to display NFTs on their profiles and creating a mar-

ketplace for users to buy and sell digital artwork and

collectibles. (Shin, 2022). Cryptocurrencies and

NFTs have also been applied to tax policy. Indonesia

uses a regulated research method to analyze how

cryptocurrencies and digital assets (NFTs) should be

taxed at low or high rates. Tax policy for digital assets

(Sitompul, 2022). Besides, crypto tokens can be used

to fund wildlife conservation as a supplemental

source of income, which can be catalyzed by the de-

velopment of crypto-wildlife non-fungible tokens

(NFTs) that can prove to be scarce, unique and pro-

grammable digital wildlife Collection assets

(Mofokeng, 2018). Finally, the application of crypto-

currency technology in the fields of physical exercise,

physical activity, sports and active aging, as a way of

assigning unique or non-fungible items to specific us-

ers, introduced so-called non-fungible tokens (NFTs),

which were then used Cryptocurrencies serve as in-

centives for users (Lopez-Barreiro, 2022).

Nowadays, there is a strong intersection between

cryptocurrency market participants and NFT market

participants. This is partly because, one needs to use

cryptocurrencies as a means of payment to buy NFTs.

The application of cryptocurrencies in the NFT mar-

ket is getting more and more attention, and it is enter-

ing a rising stage, which requires a lot of research to

improve. Therefore, this article deeply analyzes the

core of the NFT algorithm, and lists the common ap-

plications of Crypto in recent years. Subsequently,

this study takes the demo of the pet store as an exam-

ple to create an exclusive non-fungible token (NFT)

for pets, and deeply explore the role of cryptocur-

rency in improving the dog rescue community. Fi-

nally, we analyze the limitations of the current appli-

cation and look forward to the future trend of crypto-

currencies and NFTs.

2 DESCRIPTION OF CRYPTOS

AND NFTS

A cryptocurrency is a virtual or digital asset that uses

cryptography to secure transactions, which works on

the blockchain. A blockchain is a digital ledger that

records all cryptocurrency transactions. This infor-

mation is stored in decentralized databases spread

across a global computer network. This decentraliza-

tion ensure the safety of transactions based on cryp-

tocurrencies. Since there is no central point of control,

cryptocurrencies are resistant to fraud and hacking.

Blockchain technology is also transparent, which

means that everyone on the network can see all trans-

actions.

Unlike cryptocurrencies, non-fungible tokens are

unique digital assets that represent real-world items

such as videos, trading cards, photos, and music,

which managed in a digital ledger and bought and

sold without cash. Almost any digital asset can be cre-

ated and purchased as an NFT, e.g., in-game digital

characters, digital artwork, or virtual real estate. NFT

assigns a hash value to digital assets by minting coins

on the blockchain, which is permanently stored on the

blockchain. Based on the irreversibility and openness

and transparency of the blockchain, digital works can

be truly unique, which means that digital assets can-

not be exchanged or replaced with each other.

The position of NFT in the blockchain technology

stack is probably like this: the bottom layer is the

blockchain, the middle layer is the virtual machine

EVM, and the top is the smart contract. Primarily, the

blockchain mainly provides infrastructure, such as

consensus algorithms, P2P networks, etc. (Donet,

2014). The blockchain itself is a decentralized distrib-

uted ledger, and the hash encryption algorithm it uses

has preimage resistance and sub-preimage resistance.

The NFT issued on the blockchain itself is a transac-

tion confirmed on the chain, then once the transaction

is confirmed to form a block and join the main chain,

it cannot be maliciously tampered with that has a

unique identifier. Looking further up, it is the virtual

machine EVM. EVM is the abbreviation of

"Ethereum Virtual Machine" (Hirai, 2017). The exist-

ence of EVM is to allow the written smart contract

code to be parsed and run in the public chain environ-

ment. Finally, there are smart contracts. A smart con-

tract is a piece of code that is triggered and executed

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when two parties trade on blockchain assets. It real-

izes the automatic processing of traditional contracts

in the form of computer instructions. The essence of

NFT is actually a non-fungible digital asset token cre-

ated, maintained and executed by smart contracts.

Based on this contract, creating NFTs usually

needs to follow a certain protocol. The commonly

used protocols are ERC721, ERC1155 and ERC998.

These protocols define a set of interface methods and

events, and writing a smart contract only needs to im-

plement these methods and events, which is an NFT

smart contract.

3 APPLICATIONS

Cryptoassets have come a long way since the advent

of Bitcoin. Encrypted digital assets can be used for

various forms of asset registration, inventory, trans-

action media, etc., and even affect the financial, eco-

nomic and currency transaction systems of countries

and regions. More and more countries and enterprises

have begun to put "blockchain and encrypted digital

assets" into actual business models, and their applica-

tion has also achieved remarkable results. Below are

three applications of cryptoassets that demonstrate

how far the fintech revolution is taking place.

The first case is digital cash. As network fees be-

gan to rise, forcing numerous merchants to drop their

support for BTC, a growing number of Bitcoin Core

supporters began to advocate for a store of value

(SoV) narrative rather than a medium of exchange.

The main purpose behind cryptocurrencies is that an-

yone can send and receive money through a decen-

tralized P2P network. This can act as a digital version

of cash. Cryptocurrencies allow anyone to transfer

funds directly to another person, entity or organiza-

tion while always maintaining control over their

funds. It removes the constraints of traditional finance

and enables access to financial services for many un-

banked and underbanked users around the world. The

characteristics of cryptocurrency make it efficient and

convenient enough to be widely used, but it also

comes with huge security risks. The disadvantage of

cryptocurrencies is that they do not have the authority

to be responsible for all the problems that arise in all

transactions, and money laundering crimes also occur

frequently, which is a challenge to how to utilize

cryptocurrencies and blockchain technology in the

current era of globalization (Amsyar, 2020).

The second example is collateral. Crypto lending

is a novel financial tool to obtain the cash one needs

quickly, as crypto-backed loans allow borrowers to

use their crypto assets as collateral to get fiat or stab-

lecoin loans. It means allowing borrowers to access

funds without selling their crypto assets and use cash

to achieve more goals and leverage greater leverage

before repaying the recovered crypto assets. Lending

services such as Maker, Compound, and Instadapp

are now flourishing on the Ethereum network, and

many countries have gradually begun to implement

adjustments to relevant legal treaties. For example,

the United States and Ontario have specific theoreti-

cal and regulatory guidance for using cryptocurren-

cies for secured loans (Menard, 2019).

The third application is collection. As with physi-

cal collectibles, chasing fashion is fairly common in

the world of collectibles, and the same is true in the

world of digital collectibles. The crypto community

has been exploring digital collectibles for years, and

Tondello et al. have found that utility, enjoyment, in-

vestment, self-expression, and memory are the most

common reasons to value digital collectibles. Espe-

cially for reasons such as investment or collection,

methods to verify the authenticity of digital collecti-

ble objects are becoming more and more important

(Toshendra, 2020). Terra Virtua (beta) is a mobile,

PC, and web-based digital collectibles platform and

ecosystem for AR and VR. They are not the first dig-

ital collectibles platform to use DLT or NFTs, but the

way they uniquely combine collectible, trading, fa-

natical and commodity elements with a unique cyber-

space makes them potentially the global standard for

digital collectibles.

4 DEMO IN NFTS

This section focuses on the implementation of crypto-

currency in NFTs. It describes why this demo was cre-

ated, how to imitate a current existing platform and

what technologies and tools were used for it. It will

provide a step-by-step explanation of the entire pro-

cess.

4.1 Front-End

This demo provided was written on MacOS. VSCode

was used as the main development tool. The demo

was also utilizing one of the famous front-end frames

called Vue. Besides, Web3 JS is used to connect

Metamask which can simulate cryptocurrency trad-

ing. Ganache is used to provide virtual accounts. To

begin with, there are amounts of NFTs platforms over

the Internet. BlueArk is one of the most famous plat-

forms in the world. It provides a platform for the

owner and the buyer. A buyer can purchase whatever

they want and use USDT to trade with the owner.

The Application and Implementations of Cryptocurrency in NFT

513

Thus, the demo stimulate BlueArk and cryptocur-

rency can be seen how to work in a trade. The demo

mainly used Vue. As shown in Fig. 1, this is the main

page of the website. There are four buttons on the

leftside menu which includes user registration, ac-

count, update log and connect to metamask.

Figure 1: Main page of the demo website. [Owner-draw].

Seen from a single subplot in the main page. It has

a lot of information, including product ID, descrip-

tion, currency, price, royalties, category, upload day,

NFT standard and owner if any. It stipulates which

cryptocurrency the buyer requires to use for trade.

Once a buyer purchases an item, there is a buyer ID

displayed in “owner” and the “buy” button will turn

unavailable. Each transaction needs 24 hours to be

confirmed. If no other buyer wants the same item, the

NFT will belong to the buyer 24 hours later. Other-

wise, if there are more than 2 buyers who want to pur-

chase the same item, they can bid for each other. The

one bid the highest will have the opportunity to pur-

chase it. A new buyer who first comes to the website

needs to register an account (seen the left panel in Fig.

2). On this platform, privacy is the most important

thing. The buyer only requires to write down a phone

number and address for registration. Also, an ID

which is require to buy items will be given to the

buyer (as depicted in the right panel of Fig. 2). This

ID is random generation, and it is very safety. Others

buyer don’t know who buy a NFT but just an ID num-

ber. There is a price in each pet’s item card. A buyer

can select an item which one loves and pays for it.

Initially, the buyer needs to connect the metamask

and then choose an account.

Figure 2: The use registration (left panel) and information (right panel). [Owner-draw].

Figure 3: Transaction test. [Owner-draw].

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When connection is done, the buyer can check the

bill as exhibited in Fig. 3. Afterwards, the buyer needs

to pay corresponding price which is displayed in the

bill. The total price includes basic price, estimated gas

fee and royalties. When the buyer pays the bill, the

platform will confirm this transaction. Afterwards, a

picture will be sent to buyer’s account. In conclusion,

the demo stimulates one of the most famous NFT

platforms and shows the whole process of how cryp-

tocurrency works in NFTs.

4.2 Metamask and Interacting with the

Demo

Metamask is a cryptocurrency wallet for interacting

with Ethereum blockchain. It allows users to access

their Ethereum wallets through a browser extension

or mobile app to interact with DApps. In this demo,

metamask is used as a cryptocurrency wallet. It pro-

vides ether which buyer can utilize it to purchase

NFTs.

4.3 Web3JS

Web3.js is a collection of libraries that allow you to

interact with a local or remote ethereum node using

HTTP, IPC or WebSocket (Panda, 2021). In this

demo, Web3Js are used to connect websites and meta-

mask. When a buyer wants to use metamask to buy

NFTs, Web3Js allow buyers to access their wallet so

that they can pay the cryptocurrency.

5 LIMITATIONS & PROSPECTS

Although NFTs are evolving swiftly nowadays, there

are still many problems we need to confront. In detail,

the most serious problem is poor liquidity. Firstly,

most buyers do not realize what NFTs are. Consumers

need to spend more time understanding NFTs assets

before making purchasing decisions. Secondly, most

mainstream NFTs collections have high prices and

low accessibility, resulting in a small user base. Last,

NFTs lack practicality. So far, most experiments

around NFTs have focused on the artwork and col-

lectibles categories. Owing to the limited scope, we

have yet to see unique and innovative applications

outside of PFP. To generate superior liquidity, the

product or asset itself needs to have sufficient utility

to produce strong demand. With strong demand, as-

sets are easier to sell and turn into liquid assets, such

as cash. Furthermore, it will cause many problems.

Lower trading liquidity means that users cannot read-

ily swap one asset for another, and it creates greater

slippage, leading to severe price deviations. Moreo-

ver, low trading volume and exchange demand for il-

liquid assets leads to asymmetric pricing and market

information, and opaque information leads to slug-

gish market activity and difficult asset valuations.

For cryptocurrency, it trades at a glacial pace and

it also has no transparency and security. In a block-

chain, if a 1MB block is generated every 10 minutes

and each transaction requires 250B to store data, the

calculation shows that 1MB can only store 4194

transactions, divided by the time, which is a maxi-

mum of 7 transactions per second. Obviously, this

speed is not sufficient to satisfy normal transaction

demand. Besides, the lack of information and under-

standing about cryptocurrency transactions makes it

hard for governments to regulate tax revenue. This

also creates a lot of criminal activity and problems for

investors. In addition, there is a lot of uncertainty due

to fears of exchanges being hacked. Moreover, it has

high volatility. The value of cryptocurrencies fluctu-

ates. Investor confidence has been compromised,

with some having difficulty determining how much

cryptocurrency they actually own.

Currently, NFTs are highly concentrated on ava-

tars and game assets, and the lack of utility hinders

mass adoption, thus inhibiting the demand for NFTs.

Envisioning a world where NFTs become ubiquitous

and unprecedented products or commodities through

the adoption of NFTs and blockchain technology is

seen as a new asset class. It is a long way off to

achieve this dream. The following advice may be

adopted in the future. Firstly, NFTs need to be divided

into different categories with different risk and re-

ward characteristics. All asset classes in traditional fi-

nance have their own risk and return profiles, and are

given risk ratings by specialized agencies. Nonethe-

less, the risk ratings given by third-party rating agen-

cies are not entirely reliable, because the financial in-

struments issued by these centralized intermediaries

frequently have assets wrapped in layers, and the

opaque process makes it difficult to correctly assess

risks. While blockchain technology facilitates trans-

parency in financial instruments, for institutions or in-

vestors, adoption of blockchain technology can en-

hance the health of financial markets and optimize

risk-reward profiles. Secondly, a risk profile of buyer

can be established. Credit assessment in the crypto

space is still in its early stages, and it is anticipated

that the field will mature when firms have clearer user

profiles. Users’ on-chain data can then be tied to user

identities to evaluate buyer’s creditworthiness and

recommend assets that match their risk profile.

The Application and Implementations of Cryptocurrency in NFT

515

6 CONCLUSION

In summary, this paper investigates cryptocurrency in

NFTs with an illustration demo. Specifically, it fo-

cuses on how cryptocurrency works in NFTs. Ac-

cording to the analysis, a demo was built to imitate

the existing NFT platform. The demo has a vast ma-

jority of functions including user registration and

NFT purchase. The website generally uses Vue as the

framework. And it also uses Web3JS to connect meta-

mask, which is a cryptocurrency wallet. Thus, it can

cost a certain amount of cryptocurrency when buyer

purchases NFTs. Moreover, it also provides a bid

function to tackle a solution which more than two

people want to buy the same NFT. It can raise the

price and the highest bidder will have the opportunity

to purchase the NFT. However, NFT is not popular

nowadays since it’s safe and slow speed of transac-

tion. The lack of oversight may lead to fraud and it

may cause people to lose their money. In addition,

NFT are not commonly used due to cryptocurrency’s

low transaction speed. Nevertheless, it will become

popular since technology improvement. With the pro-

gress of technology, people will gradually accept this

form. Overall, these results provide a guideline for

how cryptocurrency has a better use in NFTs.

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