NFT which stands for Non-Fungible Token is a special type of crypto token that is supported by a digital asset whose origin or ownership has been authenticated by blockchain technology such as “digital signature”. One NFT cannot be exchanged with other NFTs, this is what makes NFTs have unique values.
Fungible itself means that something can be exchanged or replaced and will have the same value. These can be exchanged as dollars, gold, casino chips, bitcoin, ethereum, or frequent flyer loyalty points. So if I loan you 10 dollars cash and you return me two 5 dollar bills, I don’t mind that because even though they are different they both have the same total value.
Meanwhile, Non-Fungible means assets that cannot be replaced. It has unique attributes that make it different from something else in the same asset class. Such as paintings, theater tickets, houses, video game skins, trademarks, or CryptoKitty which is the first real use case launched on the Ethereum blockchain in 2017. Some of these assets are physical and tangible and others are digital and intangible.
Popular non-fungible token standards are ERC721, ERC1155, ERC20, and TRC721. NFTs are mostly stored in compatible digital wallets such as the MyEtherWallet and Ledger Hardware wallets. They can be customized and traded on the market easily.
NFT is included in Digital Tokenization or unregulated assets, which is an activity to tokenize digital assets such as digital artwork, in-game goods, digital shoes, and so on. NFT in the digital tokenization process allows users to create unique, rare, limited edition digital assets that can be purchased, collected, and traded securely with clarity. With blockchain technology, this process will be transparent, without the risk of copyright infringement, and there will be no arguments about ownership.
Currently, there are a lot of digital artists who use blockchain technology to tokenize their digital works. The following is a graph showing the sale of digital art using crypto that is taking place on the Ethereum blockchain:
By leveraging this token, artists, gaming companies and content creators can use it as the origin of a digital asset that can be uniquely distinguished. These digital assets take many forms, from works of art to collectable cards to the virtual real estate market.
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NFTs benefit from transparency thanks to their listing on the blockchain, adding a layer of protection for rare assets that many people are usually looking for. Some have speculated that NFTs could play an important role in the decentralized financial sector (DeFi). Here are the characteristics of the NFT:
Non-interoperable: CryptoPunk cannot be used as a character in CryptoKitties games or vice versa. This applies to collectibles such as trading cards, too; Blockchain heroes cards cannot be played in Gods Unchained trading card game.
Inseparable: NFTs cannot be divided into smaller denominations such as bitcoin satoshi. They exist exclusively as one.
Indestructible: Since all NFT data is stored on the blockchain via smart contracts, individual tokens cannot be destroyed, deleted or replicated. Ownership of these tokens is also irreversible, meaning gamers and collectors actually own their NFTs, not the companies that make them.
This is different from buying things like music from the iTunes store where users don’t actually own what they buy, they just buy a license to listen to the music.
Verifiability: Another benefit of storing historical ownership data on the blockchain is that items such as digital artwork can be traced back to the original creator, allowing the pieces to be authenticated without the need for third party verification.
NFT Use Case
Commonly referred to as NFTs, non-fungible tokens represent tokenized versions of non-fungible assets, digital or otherwise. Non-fungible assets have unique properties and attributes that make them rare, indivisible, and valuable.
The current crypto market revolves heavily around fungible assets like bitcoin and other cryptocurrencies. But NFTs are gaining traction and their rise in popularity is opening a wide range of possibilities for real-world and virtual assets. The following are the NFT use cases that are currently being discussed.
Ideal vehicle to digitally represent physical assets like real estate and artwork. Because they are based on blockchains, NFTs can also be used to remove intermediaries and connect artists with audiences or for identity management. NFTs can remove intermediaries, simplify transactions, and create new markets.
- Real-world Asset and Documentation
NFTs can be used for identity management within the digital realm as well. Consider the case of physical passports that need to be produced at every entry and exit point. By converting individual passports into NFTs, each with its own unique identifying characteristics, it is possible to streamline the entry and exit processes for jurisdictions.
- Virtual World
NFTs can also democratize investing by fractionalizing physical assets like real estate. Consider a piece of real estate parceled out into multiple divisions, each of which contains different characteristics and property types. Depending on its characteristics, each piece of land is unique, priced differently, and represented with an NFT. Real estate trading, a complex and bureaucratic affair, can be simplified by incorporating relevant metadata into each unique NFT.
Decentraland, a virtual reality platform on Ethereum’s blockchain, has already implemented such a concept. As NFTs become more sophisticated and are integrated within financial infrastructure, it may become possible to implement the same concept of tokenized pieces of land, differing in value and location, in the physical world.
Gamers make the perfect target market for NFTs since they’re already familiar with the concept of virtual worlds and currencies. NFTs are booming within the gaming industry as they allow in-game items to be tokenized and easily transferred or exchanged with peer-to-peer trading and marketplaces.
NFTs also make the gaming experience more tangible and rewarding as players have true ownership over their digital assets. They are also creating a new economy as players now have the potential to earn money by building and developing their in-game assets.
The NFT collection has demonstrated their potential and power to bring this community (fanbase) to the blockchain. The NFT is also dragging more traditional collector’s items onto blockchain technology, such as trading cards, coins, and stamps. In conversation with Cointelegraph, Dapper Labs’ head of partnerships and marketing, Caty Tedman, stated that, “The product is meant to give fans a piece of ownership over the action that happens on the court.”
The Importance of NFT
Recently, the theft of digital art works among artists on Twitter who have not put their artworks on the NFT blockchain network. The art thief is assisted by an account that converts a Tweet (both image and text) into a token code that can be entered into the blockchain network. That way, these art thieves benefit from monetization that is not their product. Of course this is unsettling for the artists.
The case above shows that it is important for digital artists to immediately claim their artworks to become NFTs, so that theft of digital artworks can be prevented. And artists get values according to the effort involved in creating their art.
The Future of NFT
Non-Fungible Tokens (NFT) are predicted to have a promising future with more number of users and increasing adoption of blockchain technology. Crypto collections, games and artwork are the most commonly used NFTs today. It brings a lot of innovation and improves the operation of various industries simultaneously by providing the benefits of the digital economy. More awareness will increase its use in the years to come.