Non-fungible tokens (NFTs) are distinctive and non-interchangeable digital assets stored on a blockchain network. The term fungible means something replaceable by something similar. So, by the name Non Fungible Tokens(NFT), we can readily understand that we are talking about a type of token that another similar token can’t replace.
It is unique and non-interchangeable. Let’s dig a bit deeper to understand the core concept behind NFTs.
What are Non-Fungible Tokens?
In blockchain and cryptocurrency, tokens are a vital concept. Tokens are also available in various forms and are used for various reasons. Similarly, NFT is also a token with its unique features and applications.
In the context of cryptocurrency, fungibility is essential. In fact, for any currency, fiat or digital, fungibility is desired because the currency is a medium of exchange.
For example, you can exchange a US dollar with any other US-dollars. Not just that, but you can also exchange it for Euros. Because of its fungibility.
If you lend a USD to someone, you don’t need the same dollar with the same serial number. However, if you lend someone a unique limited-edition baseball card, you need the same baseball card. Because it’s irreplaceable(non-fungible).
Unlike cryptocurrencies, it is a type of token that is not interchangeable and is distinguishable from each other. This attribute makes it differentiated and desirable in most cases. It is a virtual token that you make to verifiably prove the genuineness and ownership of an asset through cryptography.
Importance Of NFTs
The rise of NFTs in 2021 has surprised many people in the ecosystem’s growth. Since early 2021, the NFT market has grown massively from US$13.7 million in the 1st half of 2020 to US$2.5 billion in sales in the first half of this year.
NFTs are game-changing for creative content, art, and handling intellectual properties. As cryptocurrencies continue to disrupt the financial markets and traditional banking systems by reducing the need for intermediaries or mediators, NFTs are shifting the balance of power from intermediaries to content creators. This massive shift in the market is only just the beginning and will have a far-reaching impact.
Most content creators and artists are used to getting paid on delivery of their content only to notice future buyers of the content go on to sell it for a far higher price than the original sale price time. Creators need not worry about this issue with the adoption of NFTs.
Through NFTs, royalties can be easily tracked and paid indefinitely directly to the artist because of the underlying blockchain technology. It means that when a piece of art is sold or used commercially, the artist would see continued benefits, which is a substantial change to the business models for the creative content industries.
One of the most remarkable news about the growth of Non-Fungible Tokens was the sale of the Beeple artwork for US$69 million at the auction house. Which made Beeple the third most expensive living artist at auction.
In certain aspects, this is game-changing as there are now viable ways for large and small independent artists alike to monetize their efforts after their NFTs are sold on globally accessible marketplaces.
Non Fungible Tokens Use Cases
Non Fungible Tokens are used in various ways today, and you can find several examples of NFT in the form of collectibles, gaming, and licensing.
NFTs as Collectibles
One of the most standard examples of NFTs is using these tokens to keep digital assets to your name. One can create an NFT for any digital asset to make it unique and as your virtual asset. NFT offers absolute ownership of in-game assets and virtual goods. It is possible to own tangible items, like home ownership, soon.
In fact, according to a recently published article on Forbes, Non-Fungible Tokens from physical collectibles play a role in strengthening asset-backed securities.
Licensing
Another excellent example of the effective use of NFT is to use it for software licensing. Creating NFT based licenses can lower piracy and allow people to sell their licenses in an open market. This way, users don’t have to pay yearly subscriptions, use software against the purchased license, and sell it to someone else after the use.
Software developers can also benefit by creating smart contracts that will allow profit share on resale or anything else that can generate revenue for the original developer. It’s a win-win situation NFT offers to both users and developers. It can reduce piracy and allow the users to earn some money on their purchases.
Gaming
One of the first uses, the game that introduced the concept of NFTs to the world, was the game CryptoKitties based on the blockchain. In the game based on the Ethereum blockchain and ERC-721 standard, you collect, buy, breed, and sell digital kitties. Each digital kitty with its genetic characteristics and features are stored on the blockchain.
It initiated the idea of Non Fungible Tokens. The game became so popular that the sales crossed over USD 12 million within a year.
Another famous example is Decentraland, a game about digital scarce land. One can purchase, develop, and sell the land in Decentraland using Non Fungible Tokens. You have complete control over your land. You can build anything over it, make it unique, and add value to it. The game uses the 360-degree virtual world to feel like you are in the real world.
The ownership of in-game assets in the above games using Non-Fungible Tokens has created value for these assets. You can sell your in-game assets in both games, for a profit, by selling your Non Fungible Tokens.
Several other games came into existence with the same concept, using NFT. Using NFT, people can now own, buy, and sell their game characters.
Conclusion
Non Fungible Tokens are undoubtedly disrupting many industries in various ways. The applications and use-cases of this new type of token are still in progress. Still, it is getting popular primarily because of its use in games as in-game assets and as art collectibles.
