What is NFT and how does it work might be one of the questions you have surely heard if you are a millennial investor or a crypto enthusiast. In the first week of March 2021, a digital collage of images called ‘Everydays: The First 5000 Days' by the digital artist Mike Winkelmann (Beeple) was auctioned for a whopping US$69.3 million dollars through the auction site Christies’ as an NFT. Unbelievable?
How about the eccentric tech giant Elon Musk turning down the US $1.12 Million for a tweet he was selling as NFT? This amount might be a small peanut for the second richest man in the world but think about the amount bidding for an NFT! Although it may sound absurd, the rapidly growing market for crypto-collectibles and crypto-art is not a joke.
Don’t you want to know a little more about NFT? Let us have a quick sneak peek into the topic.
What is NFT?
NFT is an abbreviation for Non-Fungible Token. Before understanding the meaning of NFT, let us analyse what is the meaning of the term ‘non-fungible’.
An item becomes non-fungible if that cannot be swapped with one another. In short, the particular item would be unique. For example, an art piece by Micheal Angelo can never be equal to a masterpiece from Picasso.
Items that are fungible, on the other hand, can be swapped for one another. One bitcoin, for example, is always the same as another bitcoin, and one dollar is always the same as another dollar.
A token is a digital asset that may be transferred from one person to another on a blockchain. Therefore a non-fungible token is a unique digital asset that is transferable on a blockchain. It's impossible to reproduce or break an NFT down into smaller components. Most of the NFTs are based on the Ethereum blockchain.
How does NFT work?
Assume that there is a piece of digital art which could be simply a jpg. This can be used to make or mint a non-fungible token (NFT). This NFT that represents the digital art would also contain a little more information such as the file’s unique fingerprint, a token name, and a token symbol that can uniquely identify the particular piece of digital art.
The artist of the digital art can thus be the owner of this token, which is subsequently kept on a blockchain. By initiating a blockchain transaction, the artist can now sell this token. This information can never be tampered with, thanks to the blockchain. It also helps the artist to keep track of who currently has the token and how much it has sold for previously.
To conclude, NFT is a digital file that can represent real-world elements like art, music, in-game items, videos etc. which are stored and transferable over blockchain. Blockchain can be considered as a public ledger that can keep track of transactions. NFTs are bought and traded online, often using cryptocurrency.
NFTs are usually encoded with the same underlying principle that is used for crypto currency. The main feature of an NFT is that this digital file is verified with identity and ownership. This verification is carried out with the help of blockchain technology, an unhackable system built on cryptographic mathematics.
Advantages of NFT
NFTs have a number of advantages, including the fact that they are authentic, and preserve ownership rights.
Non-fungible tokens are purchased and sold on specialised marketplaces unlike fungible tokens which are exchanged and traded. In this scenario, NFTs' worth is determined by its rarity.
Because NFTs are backed by Blockchain technology, NFT is always real and that counterfeiting is nearly impossible, implying that NFTs are genuine.
Finally, NFTs use decentralised platforms for transactions. It prevents the owner from changing, altering, or compromising the data once it has been committed.
Non-fungible tokens aren't new to the game world, since they're well-known for fixing challenges. Rare features and accessories, like skins and weaponry, are prohibited in popular games like Fortnite. However, with non-fungible tokens, these characteristics can be easily transferred and employed in a variety of games. As a result, NFTs can aid in the development of in-game economies (eg: in-app purchases). Once tokenized, in-game elements can be easily exchanged with peers which is not possible otherwise.
The storing of numerous forms of data, both private and public, ranging from your birth certificate and health information to land records and much more, is the most obvious application of unique, hack-proof virtual NFT tokens.
Tokens that aren't fungible are ideal for preventing identity theft. Medical records, academic documents, and a person's appearance are just a few examples of easily digitised items that might be used to represent one's identity. Furthermore, for copyright purposes, digital artists can transform their work into non-fungible tokens. The use of NFT to aid with identity verification, such as converting physical game tickets into NFTs, helps against counterfeiting.
In the realm of collectibles, NFTs are ushering in a new era. As a result, traditional collectibles are beginning to incorporate digital elements. Unique collectibles when offered with unique identity adds on their value.
NFTs have also been used in real estate and private equity transactions. One of the applications of NFT is the ability to issue a bond or deed for artwork to real estate in a single financial transaction.
Sports and Public Concerts
Tokenized tickets on blockchain for sports events, public concerts, or mega events can prevent illegal merchandise.
Mode of Monetization
NFTs give artists and content creators a one-of-a-kind way to monetize their work. Artists, for example, no longer have to sell their art through galleries or auction houses. Instead, the artist can offer it as an NFT directly to the customer, allowing them to keep a bigger profit margin.
Additionally, artists can incorporate royalties into their NFTs to receive a percentage of revenues whenever their work is sold to a new owner. Most artists do not receive more proceeds after their first sale, thus this is a desirable aspect.
NFTs aren't just for making money in the arts. To raise money for charity, companies like Charmin and Taco Bell have auctioned off themed NFT art. Charmin's offering was given the moniker "NFTP" (non-fungible toilet paper). Nyan Cat, a GIF depicting a cat with a pop-tart body created in 2011, sold for nearly $600,000. As of late March, NBA Top Shot has earned more than $500 million. A whopping $200,000 was spent for a single LeBron James clip NFT. Unique memories and moments are currently being transformed into NFTs.
The Road Ahead
The high volume NFT might be crazy enough for everyone to comprehend. It could be another dotcom bubble or Tulip frenzy (some historic market crashes), we never know! But it is clear that non-fungible token applications are becoming increasingly important in a variety of industries. Since the debut of a test version of crypto cats (Crypto Kitties) in 2017, NFTs have grown in popularity significantly. With the most significant NFT use cases, the gaming business is one of the most active sectors.
Industries are gradually adopting NFTs by ensuring blockchain integration and asset tokenization. The popularity of NFTs as a secondary method for storing personal data on blockchain or picking a crypto address will be fueled by the expanding use of blockchain in the future. As a result, NFTs could herald a future in which individuals use blockchain and cryptocurrencies in everyday chores without ever realising it.
Zartek, as early adopters of cutting-edge technology, can assist you if you want to incorporate NFT into any of your services, or blockchain in particular. We will be delighted to assist you with your requirements. Why not join hands to build a bright and secure future? Contact us today for a stimulating discussion or send us an email at firstname.lastname@example.org.