One of the most powerful as well as interesting concepts that emerged from blockchain technology are NFTs (Non-Fungible Tokens). They can encode conditional transactions, provide provenance, and secure digital content and all of it is embedded in the blockchain.
Over the course of the last 2 years, NFTs have exploded and from toilet paper and tacos to music and art, they’re being sold like exotic Dutch tulips of the 17th century. The reason for the popularity and craze of non-fungible tokens lie within their uniqueness.
If you want to know what NFTs actually are, then read this post till the very end. It’ll allow you to understand why many people seem to be obsessed with non-fungible tokens and whether or not they’re a good investment. So let’s get started.
Table of Contents
- 1 What are NFTs (Non-Fungible Tokens)?
- 2 What Are The Ways People Use NFTs?
- 3 Why Did NFTs Become So Popular in 2020?
- 4 Who Benefits From NFTs?
- 5 So, Are NFTs A Good Investment?
What are NFTs (Non-Fungible Tokens)?
In a nutshell, an NFT or non-fungible token is a digital asset that represents ownership of different types of digital items such as videos, music, art, in-game items, etcetera. You can consider these tokens the collectibles of the digital world.
You can buy, sell, and trade NFTs online, and all the data related to them is securely stored on the blockchain. Not only does it ensure that the digital assets remain unique, but it also makes it almost impossible to counterfeit or alter them.
In order to grasp the concept of NFTs properly, it’s important to understand the economic concept of fungibility.
What are Fungible Items?
Any item that can be exchanged with another item easily without compromising its uniqueness is called a fungible item. For instance, if you have a $1 bill then you can exchange it with anyone for another $1 bill without compromising the value, even though you’ll have a new item with a different serial number.
What are Non-Fungible Items?
Unlike fungible items, non-fungibles are not interchangeable. Each non-fungible token comes with unique characteristics and values. You can’t exchange it with anyone to get another NFT that has the same characteristics and value.
What Are The Ways People Use NFTs?
Most NFTs that you can find in the crypto world are based on the ERC-721 standard. It’s an identifier that is compatible with the Ethereum blockchain. This identifier was created by CryptoKitties which is the company that hit the mainstream with NFTs back in 2017. Now it’s very common to find NFTs in digital art, collectibles, and games. Here are some of the most common uses of non-fungible tokens.
Gaming is one of the most common use cases for NFTs that’s because this medium has a huge demand for purchasable and tradable unique items. NFTs provide players with ownership of their items instead of developers. Not only can you purchase in-game items through NFT technology but you can also trade them with other players.
Gods Unchained, which is a turn-based card game, is a great example where players can buy certain NFT cards that represent certain powers, events, creatures, and characters. These NFTs can be used in one-on-one combat against other players.
Digital Art NFTs
One of the biggest challenges that digital collectors and artists face is the verification of digital art’s authenticity. NFTs solve this problem like a piece of cake as they’re based on blockchain technology.
Just like digital art (image file), it’s also possible to attack any music track (audio file) to NFTs. Getting a fair share is one of the biggest problems for musicians but blockchain royalty tracking and the blockchain-based streaming platform are great ways to address this problem.
NFTs also allow fans to own a music track of their favorite artist. The royalty of the track will still belong to the artist but owning something as property has a deeper meaning.
The demand for digital collectibles is massive whether it’s a Binance Anniversary NFT or PancakeSwap Bunny. It’s important to note that a digital art NFT can also be collectible depending upon its demand. One of the most popular examples of collectible NFTs is CryptoPunks that offers uniquely generated characters with collectability value.
Why Did NFTs Become So Popular in 2020?
The very first non-fungible token project was created back in 2015 on the Ethereum blockchain. It allowed people to realize that they can trade collectibles and assets other than Bitcoin as well. But the NFTs started emerging after CryptoKitties launched in 2017.
CryptoKitties is a game based on blockchain that allows players to adapt and trade digital cats (NFTs). It is a unique yet adorable concept and people started making as well as spending boatloads of money.
However, it went quiet until late 2020 when NFTs reemerged with explosive popularity. There are multiple reasons why this happened:
- NBA Top Shot’s emergence in October 2020
- The insane bull run of Bitcoin in April 2021
- Metaverse NFTs and Web 3.0
- Artists exploring new monetization structures for videos and music
- The fame and the growing number of digital collectibles
Who Benefits From NFTs?
NFTs allow people to own digital assets and buy, sell, and trade collectibles like never before.
Non-fungible tokens offer a whole new source of revenue and a safe place for artists to display their work. For investors, NFTs bring a new asset class to invest in and maximize their returns.
Real-world collectible items can be damaged but that’s not the case with NFTs because they can stay safe forever, thanks to their digital form. If a digital art or a music track becomes a hit, you can sell it even after 20 or 30 years.
So, Are NFTs A Good Investment?
Currently, NFTs are a hot topic and investors and traders around the world are spending a lot of money to buy them.
However, there are still no guidelines or any criteria to determine the price of a GIF, meme, Tweet, or any digital art which makes NFTs an extremely risky investment.
It’s difficult to value digital art and it totally depends upon how much someone is ready to pay.
The best strategy is to spend the money that you can afford to invest in NFTs and keep in mind all the time that they’re highly speculative.