TL;DR
Bitcoin has changed the way people think about digital money. With the introduction of Bitcoin, it has allowed us to create something incredible in the digital world — digital scarcity. We've been able to program digital value into our products so they're scarce.
Non-fungible tokens (NFT) are the main beneficiaries of this idea. They differ from cryptocurrencies because each individual token is different; they're not interchangeable.
Through NFTs, token holders could own a piece of something; they could share ownership; and they could even be tied down by some real world assets.
Introduction
Non-fungible tokens (NFT) are digital assets that link the ownership of an item to the identity of the owner. These tokens are not interchangeable with each other and cannot be used as currency. Rather they represent something special about the item itself. For example, these could include collectibles such as baseball cards, comic books or video games.
We can juxtapose NFTs with cryptocurrencies. One attribute that distinguishes these two asset classes is fungibility; fungibility means that an asset's individual unit is interchangeable with others. Unlike cryptocurrencies, NFTs aren't fungible. Hence the term Non-Fungible Token. Hence why they are called Non-fungible Tokens.
In the traditional financial system, we have fiat currencies as a medium of exchange. They also carry the fungible attribute. Meaning ten dollars that I own could be exchanged for another ten dollars and they are worth the same exact amount. This is vital for any fiat currency since it allows for free exchange.
However, this trait is not desirable for collectibles. Instead of making tokens that can be exchanged for one another, why not create a token with a unique identifier? This is what NFTs are.
How Do NFTs Work?
There are various ways to create and issue NFTs. One of the most popular is through ERC-721 contracts, a standard for issuing and trading NFTs on the Ethereum blockchain.
Other blockchains have their own standard as well. For instance, BNB Smart Chain has the BEP-721 standard which is compatible with the BNB blockchain. This has also become a popular destination to mint NFTs due to the low gas fees.
Storing Your NFTs
Just like any other cryptocurrency or token, your NFTs also exist in your wallet address. You can use one of the many blockchain wallets out there including Trust Wallet, Metamask, Coinbase Wallet, etc.
Trading NFTs
There are many open market places that NFT holders can utilize in order to buy or sell NFTs. NFT holders need to visit the marketplace that is compatible with the NFT they hold. For instance, the NFT holder would visit OpenSea on Ethereum, or BakerySwap on BSC.
These NFT marketplaces allow users to trade NFTs, either buying or selling. Further, the value of each token is unique and is prone to price fluctuations in response to market demand and supply.
Where do NFTs derive their value from?
Value in anything is not inherent, rather it is designed and deemed valuable by the people who deem something valuable. Sure, you can say scarcity is part of the equation, however, at its core something is only as valuable as the people deem it valuable. For instance, a culture was known for ascribing certain rocks value. In fact, they even used it as a medium of exchange and a form of currency.
Different cultures ascribe different things value. So people consider things valuable and NFTs are no different than any other item that has ascribed value.
What Are Some Use Cases For NFTs?
There are many things individuals can do with their NFTs. At the very basic level, NFTs could be used for speculative reasons. Individuals trade NFTs in hopes for a higher return in the future. NFTs can be utilized by Decentralized Applications (DApps) to issue unique digital items and crypto-collectibles. Depending on their purpose, these tokens can be collectibles, investment products, or a combination of these.
Another blockchain industry that has benefited greatly from the introduction of NFTs is the GameFi industry. Many of the gaming ecosystems have their own economies. They have leveraged the power of blockchain to tokenize in game assets that will give players more control over their gaming experience. Further, they have also been able to tokenize these in-game iterms as NFTs.
The metaverse is another example that use NFTs. Metaverse projects utilize NFTs to tokenize their assets in the metaverse. Further, they also could be used to bridge asset from the real world, and utilize them on the blockchain. These NFTs can represent a fraction of real-world assets that could be traded and stored on the blockchain.
Another sector that can benefit greatly is the identity sector. Storing data like identification, SSN, ownership of a car or home, could all be done more efficiently through blockchain. Individuals could harness the power of NFTs to store personal information and certificates. In a similar vein, a seamless and trustless transfer of these assets over the blockchain could eliminate friction that exists in the global economy.
Popular NFT Projects
There has been an incredible amount of NFT projects that have propped up and built an ecosystem. Some of the more popular projects are as follows:
Decentraland
Decentraland is a popular virtual reality world that is one of the main movers in the metaverse. They allow players to exchange pieces of virtual land and other in-game NFT items. Players can build or even exchange their in game items.
NBA Top Shot
NBA Top Shot is an NFT project where NBA fans could collect the best in-game basketball performances as an NFT. Basketball fans can trade, buy, and sell basketball video clips. These video clips are highlight reels and are based on the level of rarity.
Apecoin
APE is the official token for the popular NFT project Bored Ape Yacht Club (BAYC). BAYC is a collection of Ape’s that launched in 2021 and became the fastest growing NFT project. Users can buy, trade, and sell NFTs. Further, APE is a governance token meaning holders partake in the decision making process and are part of its DAO.
How To Create NFTs?
Creating your own NFT is as easy as going to a platform and minting an NFT. You can select any platform on the blockchain of your choice. Popular options are Opensea and Rarible, both popular Etheruem platforms. Next, you will need some crypto to pay for the minting fee and some to turn into an NFT.
As for the blockchain of choice, there are many popular options. Ethereum has been the go to blockchain and home of many popular NFT projects. Many choose to mint and develop their NFT collection on this blockchain. Ethereum has a well established NFT community however, it does come with some downsides.
One of those are transaction fees. They are incredibly high on the network and at peak times, fees could account for a large percentage of the transactions. This has led other blockchains to take up the mantel as the NFT minting place of choice due to their lower gas fees. Other popular NFT blockchains with low fees are BNB Smart Chain and Solana.
How To Purchase An NFT?
NFT platforms are great marketplaces to purchase your first NFT. These platforms often require a crypto wallet address and crypto. However, there are other platforms that allow you to use your credit card or paypal to purchase NFTs.
Platforms like Opensea will have NFTs priced in Ethereum. Opensea have also expanded to include other forms of cryptocurrencies to pay for those NFTs like Polygon (MATIC). You can head over to Opensea and select the NFT you want to purchase.
You first need to connect your wallet address like metamask. Make sure to have the crypto that is accepted on Opensea. Once you finish this, you can purchase it from the seller.
Final Thoughts
NFTs have used blockchain technology to bring a whole new group of unconventional investors. NFTs have allowed users to tokenize in game items or bring physical assets into the digital world. They serve a vital component for the crypto space.
NFTs have plenty of use cases from tokenizing physical assets, to trading in game items or unlocking rewards. One thing is certain, this technology has many investors excited.
Comments