By Ian Kane
NFTs are non-fungible crypto tokens that lack the fungibility of their digital counterparts, hence the name. Unlike cryptocurrencies, each NFT token is unique and can be held only in a single wallet.
They are not interchangeable; meaning they cannot be exchanged like dollars or Bitcoin because each NFT represents a unique digital item and price point. NFTs were created to help convey that a digital item is as original and precious as a physical one.
Although the owner of the NFT does not always assume the exclusive rights to use its attached work, NFTs can confer the authenticity of said item. Typically, NFTs are present on an Ethereum blockchain and represent a piece of a digital media item, for example, an image, text, or video. NFTs became extremely popular in 2017 when collectible images of digital cats “cryptokitties” began selling for thousands of US dollars.
This year, the work of a digital artist named Beeple was sold for $69.3 million. While this may seem cumbersome and not very lucrative, it may present greater value opportunities for creators and organizations that extend beyond just basic images.
According to a recent survey, the value of NFT transactions has risen by 400% in the last 12 months i.e., an increase of $240 million per year.
Additionally, 222,000 new wallets have been set up to store or pay for NFTs. Bringing the total value of the NFTs issued on the Ethereum Blockchain to $14.3 billion. A figure which is expected to double in the next year. By the year 2025, experts predict that the value of worldwide NFTs will reach $80 billion.
A poll conducted in March indicated that 11% of American adults have purchased an NFT. It is important to understand the use of NFT tokens is expanding beyond cats and collectibles and it is expected that they will prove useful for all sorts of activities in both physical and digital environments.
Creating consistent value in an inconsistent market
NFTs live in an open blockchain system which allows all the transactions to be viewed publicly. This makes it possible to code features into contracts that govern the rules of buying and selling NFTs. Such contracts can give digital artists a stake in their own work and a share of the proceeds – even after the artwork is sold.
This is not possible when the artwork is sold through conventional means. NFTs can also link to a text that contains the legal contract of ownership of that NFT. However, the property rights of the NFT are usually conferred by the platform issuing them. Depending on the issuer, you may or may not be allowed to use the NFT for commercial purposes. The ownership of an NFT is equivalent to the unique ownership of a digital item.
The craze about NFTs is taking over the world. NFTs have moved well beyond the digital world. Several art galleries in London are showcasing NFTs – another indication that non-fungible tokens are moving towards mainstream adoption.
Recently, the NFT platform ENVOY has committed to creating and producing a suite for artists and NFT collectors that rewards them for showcasing their work and NFTs on its platform. The platform even intends to reward people for holding and using their NFTs.
Several NFT collectors and platforms are getting increasingly involved in the “metaverse” as well – a parallel digital universe where online games are played and digital items are stored and collected. This too has led to the growth in popularity of NFTs and digital collectibles.
Transitioning from art to utility
While different artistically defined NFTs (such as Beeple’s art piece) have burst the market wide open – the value of the NFT market extends far and beyond digital images. They may even be able to help you buy the property and or access a vaccine passport. For example, the country San Marino has allowed the use of such tokens as digital covid-vaccine passports. Due to the secure nature of blockchain – and these tokens’ proof of unique ownership – NFTs have become extremely useful for financial activities such as buying and selling properties.
These types of tokens are already being used for buying virtual plots of land in immersive online worlds called “metaverses”. They can even be used to exchange real-life property deeds and other such contracts as well. This year the founder of TechCrunch, Michael Arrington, sold his property in Kyiv in this manner.
The platform that listed his property signed an agreement with the Ukrainian government that the sale of that particular NFT would mean the transfer of the property deed. The decentralized nature of NFTs based on blockchains can eliminate the need for intermediaries and allow people to take loans directly.
Several capitalists are trying to build a new type of digital economy where all the online activities will be decentralized, owned, and operated by users. The distribution of all digital content like videos, pictures, and articles will be done through NFTs. Something like this is already happening in the gaming industry. Several games allow players to buy, sell, and own player cards digitized as NFTs.
These NFT owners also have a stake in how the game is developed. Recently, the University of California sold documents relating to Nobel-prize winning research on cancer immunology as a collectible item. They were sold at a price of $50,000 to fund research in the university, which it is planning to do again in a similar auction.
The Bottom Line
The capitalization of NFTs by brands like Gucci, Dolce Gabbana, and The Economist has allowed them to explore more purposeful brand uses of these non-fungible tokens. Such tokens and NFT-based player cards are already being extensively used in the sports industry to alleviate the interest and involvement of sports fans, especially during the pandemic.
This demonstrates that NFTs have evolved well beyond just cat collectibles and entered the real world with real-time applications. They can be used for several activities where proof of ownership is required like digital vaccine certificates or property ownership. However, the system is not flawless, and sometimes certain unethical sellers choose to give buyers broken or changed links after the transaction.
This can be fixed using a decentralized storage system. Despite these problems, NFTs are revolutionizing the digital world, helping several industries from sports to fashion to transform the way they interact with their customers.
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