When talking about the current hot topics in the crypto world, one cannot miss mentioning the buzz around NFTs. While everyone is fussing over Bitcoin and other cryptocurrencies, a different type of digital asset has quietly been gaining momentum.
Evolving right alongside cryptographic and blockchain technology, non-fungible tokens or NFTs are an excellent example of the fast-paced change in the industry.
But what are they and why are companies looking at it with high hopes?
The Big Game Behind Fungibility
Before trying to figure out what the hubbub around NFTs is, let’s understand the underlying concept of fungibility. ‘Fungibility’, a rather complicated-sounding word is a simple concept that relates to the things we own and use every day. It applies to digital as well as real-world assets.
A crisp banknote in your pocket or the Bitcoin in your crypto wallet is an excellent example of a fungible asset as they can be easily replaced by something that is identical for all intents and purposes.
The tables turn completely with the non-fungible assets which are in stark contrast with the fungible ones. Unlike Bitcoin, which has a supply of 21 million identical coins, NFTs have certain individual characteristics that set them apart.
NFTs are unique, rare, and indivisible.
Each NFT has metadata describing what sets it apart from the rest, a permanent, unalterable record that describes what this NFT represents, just like an authenticity certificate. You cannot swap them or directly replace them with another token as no two are alike.
What makes NFTs so attractive? The simple answer is scarcity. While developers can freely generate an unlimited supply of certain assets, they also have the power to cap the number of rare, desirable items in existence.
NFTs cannot be broken down into smaller denominations but can only be bought, sold, and held as a whole, making them more valuable and high in demand.
What Makes NFTs So Exciting?
The three key reasons behind the success and popularity of tokenization include:
Ownership: Unlike your Twitter or Instagram handle that can be easily snatched away from you, NFTs come with ensured ownership. Blockchain technology helps enshrine your ownership rights, making it a lot easier to move the digital assets around.
Transferable: NFTs can be freely traded on specialist markets. NFTs also solve the problem of” walled gardens” in games and allow coveted assets within a popular game to be used in a totally different title or exchanged for items in another game even with a different publisher.
Authentic: The blockchains powering NFTs clamp down on counterfeiting and give buyers confidence that they’ll get what they pay for beating the big problem of fraud or counterfeit.
NFTs: Use Cases and Applications
Gaming: Popular titles such as Fortnite prohibit the selling of rare weapons and skins. Using these assets in other games can be near to impossible most of the time. With NFTs, coveted items can be easily transferable — solving one of the biggest complaints by avid gamers.
Art: Digital artists find it extremely difficult to protect their copyright creations, making it difficult for talented creators to make a living. NFTs allow customers to buy an art piece and showcase it in a virtual space, with blockchain offering proof of ownership. This allows artists to get a bigger cut of the payment and even portion out a residual profit from future sales, creating a recurring revenue stream.
Virtual and Real-World Assets: The Ethereum Name Service offering .ETH domains and Unstoppable Domains offering .crypto addresses have turned each of these domain names into non‑fungible tokens to be bought and sold easily. Platforms such as Decentraland and Cryptovoxels allow people to buy plots of virtual land. Work in the real-world asset space is at its preliminary stage, but it’s possible to tokenize real-world assets like property, with NFTs being used to prove that someone owns a piece of land.
To Be Or Not To Be: The Pros And Cons of NFTs
While NFTs can unlock new revenue streams in gaming, sports, arts, and technology, building decentralized apps for non‑fungible tokens can be tricky and time-consuming.
NFTs could introduce millions of people to cryptocurrencies for the very first time but a much more simplified version of NFTs is required for people who know nothing about blockchain to use them with ease.
They can make it possible to own a real-world asset that’s thousands of miles away. However, NFT games can also have a ”hot potato” effect. Players might buy an asset in the hope of selling it on for a profit, but they would have to face a nasty loss if the market collapses.
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