It was the summer of 2021 when the value of cryptocurrencies and the NFT market skyrocketed in April. Be it Bored Apes or CryptoPunks, the appeal was something to pay attention to in the digital realm. Investing in a Bored Ape NFT was akin to investing in a designer handbag in the real world, so investors were (still are) willing to spend big on them.
For the uninitiated, buying an NFT is similar to getting the underlying intellectual property right to your favourite Pokemon card.
This article delves deeper to understand why NFTs are still the rage.
What is an NFT?
Simply put, NFTs are tokens that represent ownership of a unique item. Real estate, art, and collectibles can all be tokenised.
The term “non-fungible” describes items that cannot be substituted or exchanged with other items, such as real-world entities. Fungible items, on the other hand, are defined by their values rather than their intrinsic properties, allowing them to be interchanged. It is possible to exchange one ETH for one USD and vice versa, so ETH and USD can be exchanged for each other.
With blockchain technology at its core, NFTs offer buyers several benefits. This technology tracks the provenance of each token, which can prove its authenticity and ownership. A wave of NFTs is breathing new life into the world of creators, communities, digital art, and collectibles, leading to massive growth in cryptocurrency sales as well. The use of NFTs is not limited to digital art and entertainment. They can represent unique assets, such as certificates and contracts for digital or physical objects.
What Makes NFTs Unique?
In the digital age, it is essential to recreate physical characteristics such as rarity, uniqueness, and proof of ownership.
For instance, consider education, where diplomas and certificates are often printed on paper and issued manually. These credentials are manual in their storage, verification, and distribution, making them easy to counterfeit. Not to mention, it’s an expensive affair to send these certificates to potential employers after requesting issuing institutions for online copies. Therein lies the value of NFTs.
Educational institutions can create NFTs for certificates, including information like grades, accomplishments, coursework, and reports, to simplify the process. Employers can verify applicants’ credentials more efficiently and securely by using the NFTs.
In addition, the following characteristics make the NFTs unique:
- Every NFT is unique at any time. No two are the same.
- All NFTs must have an owner, readily identifiable and verifiable by anyone.
- NFT is compatible with anything built on the blockchain. For instance, Ethereum. The NFT tickets for an event can be exchanged on any Ethereum marketplace for completely different NFTs. You can exchange artwork for tickets!
- Content creators have access to global marketplaces and can sell their creations anywhere. It is up to the creator to obtain a resale license directly for their work.
- It is possible to use these digitised items in a variety of ways. Digital items can be used as collateral for decentralised loans, for instance.
How Do NFTs Work?
NFT tokens are completely unique and cannot be split. Utilising the Ethereum blockchain as a public ledger, NFTs provide the ability to assign or claim ownership of all digital data. There can be both digital and non-digital assets represented by these objects. An NFT can represent digital art such as GIFs, goods, music, videos, and real-world items like tickets to real-world events, tokenised invoices, legal documents, and signatures.
UniqueIDs and metadata manage ownership uniquely that no other token can replicate. A smart contract manages NFT portability and assigns the ownership. When someone creates an NFT, it executes code stored in smart contracts that comply with various standards, such as ERC-721. This information is added to the blockchain that manages the NFT.
The embossing process has the following high-level steps:
- Create a new block
- Verification of information
- Incorporating information into the blockchain
Uses of NFTs
Here are some uses of NFTs:
Building Creator Economy
One of the prominent uses of NFTs today is digital content. NFTs are powering a new creator economy, where platforms do not acquire ownership of the content creators publish on them. Ownership is accounted for in the content itself. When they sell content, the money goes directly to them. Upon the sale of their NFTs by a new user, the original creator can even automatically receive royalties, with the creator’s address cemented in the immutable metadata.
Online Gaming
NFTs are becoming increasingly popular among game developers. Players can benefit from NFTs in several ways, including proving ownership of in-game items, boosting the economy, and enhancing the in-game experience. Most regular games allow you to buy items that can be used in the game. In the case of NFTs, you can resell them after the game has completed so that you can get your money back. It may even be possible to make a profit if the item becomes more valuable.
When an item is resold on the open market, a game developer (NFT publisher) will earn royalties. This results in a more mutually beneficial business model for both players and developers. Moreover, if the developer discontinues maintaining the game, the items that have been collected will remain with the player.
The items you own in the game can ultimately survive the game itself. Despite the fact that the game is no longer maintained, you still have control over the items. Therefore, digital keepsakes become valuable outside of the game. Virtual reality games also allow you to buy NFTs. For example, Decentraland.
Physical Items
Digital tokenisation is more advanced than the tokenisation of physical items. There are, however, a number of projects weighing tokenisation of real estate, fashion items, and more.
NFTs are certificates, so buying a car or home with ETH can be converted into NFTs in the future (in the same transaction). It’s not difficult to imagine the day when Ethereum wallets will unlock our cars and homes via encrypted proof of ownership.
NFTs can be used as collateral for diversified loans if you have valuable assets, such as real estate or automobiles, that can be represented in Ethereum.
Certificate of Authenticity
NFTs can make digital assets unique by verifying their originality. Furthermore, all subsequent NFT transactions are transparent. As a result, each sale, trade, and owner of an asset is recorded in the NFT’s ledger; enhancing its provenance. NFTs can easily and securely verify someone’s diploma or graduation certificate.
Social Impact
NFTs can also be used for social change by NGOs, universities, and research organisations. These organisations can use NFTs to mark their research, create stunning collectibles, and raise awareness and money for a variety of initiatives and causes. Using NFTs could help them draw in a younger, more Internet savvy, purpose-driven, and generous donor base. A key benefit of NFTs is in fact their ability to build communities.