What is the difference between 1st, 2nd and 3rd generation NFT's?

First generation NFTs:

These NFT's were introduced early in 2017 as unique on-chain identifiers that can be attached to a specific wallet. Transfer capabilities and properties have since been added to support more information stored within the NFT. However, once minted, these NFTs cannot evolve, as they are hard-coded and inherently static.

Second generation NFT's: 

These NFT's introduced support for both on-chain and off-chain metadata. 
Each NFT is a unique unit of data linked to metadata representing digital and physical objects on-chain or off-chain and can provide an immutable proof of ownership. 
As such, these NFTs have been commonly used to create digital scarcity for digital assets — particularly for art and illustrations — as seen in the NFT boom of 2021. They’ve also gained popularity in play-to-earn games and have generated substantial excitement around nascent use cases such as royalty payments for artists, event ticketing, and loyalty programs. They are limited, however, by the inability to change properties depending on internal or external parameters. Moreover, even with the introduction of metadata to supplement the NFT properties, these are often stored on external on-chain or off-chain sources, which may or may not be in direct control and custody of who owns the NFT. 

Third generation NFT's:

In 2022, the industry shifted to utility use cases for NFTs. Building on top of existing standards’ inherent ownership capabilities allows NFTs to represent liquidity positions as introduced in Uniswap V3. Recent developments like Soulbound Tokens (SBTs), as proposed by Vitalik Buterin, represent an NFT that is locked to the wallet where it is minted and can represent identity verification, credentials (as achievements), and other owner-specific use cases. 

The introduction of NFTs with dynamic metadata by Chainlink (dNFTs) allowed for updating key metadata about the NFT itself, relying on both on-chain and off-chain sources and oracles to adjust this information dynamically. These developments demonstrated the potential for NFTs to serve a wide range of utility-led functions and change the conversation about what NFTs can do — more than just representation but ownership, identity, credentials, access and more.

The increased focus on utility has expanded the potential uses for NFTs and quickly opened the door to more utility-based discussions, such as evolving your static NFT into an avatar that could reflect an individual’s online identity. This same avatar could dynamically store a compliance record without exposing personal information and several other potential uses for NFTs.

However, there is a need to evolve the NFT landscape from first- and second-generation NFTs into the next generation that offers more capabilities. The first generation introduced static data within the NFT, and the second introduced metadata that could reference on-chain and off-chain information, which can be dynamically updated. Two challenges remain to evolve to the next generation of NFTs: the fractured use of metadata on-chain and off-chain and the increasing non-interoperable NFT standards developed to cater to specific use cases.


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