NFTs are the natural progression of cryptocurrencies as they make use of the various blockchain technologies that power them. However, while they are the same in essence, they are dramatically different in application (aside from their investment potential). This post will cover what NFTs are and how they are fundamentally different from their cryptocurrency forefathers, among other interesting facts.
NFTs: What Are They?
NFTs (non-fungible tokens) are digital assets with unique characteristics, such as scarcity and ownership. They can be used for trading on the blockchain or ownership in games and virtual worlds. Also, they have a digital identity that can be revealed using either a name or number, unlike other cryptocurrencies that don’t. Today, NFTs have many applications, but they may become more popular with some industries like real estate and the art market, where people want to own assets digitally with a unique identifier in the future.
What Do They Do?
The purpose of NFTs is to manage market scarcity and allow content creators to retain ownership over their work while still allowing investors to own a representation of it. If you wanted to sell your artwork, you could create tokens representing it using NFTs and then sell it on an exchange. The greater the demand for your tokens, the more valuable they will become. NFTs are most commonly used in collectibles and games, where players can trade items with each other or resell them for a profit later on. But now they’re branching out into the newest online trend, the Metaverse.
For instance, you could purchase an NFT in the form of a plot of digital land in a casino, concert setting, or almost anything else. You can then use the underlying blockchain technology to profit every time someone uses your plot of “land.” In the case of a casino, you could earn a commission as players gamble on your “land,” or you could simply sell a valuable plot for a profit. The key point is that it uses the blockchain to create digital assets and their transfer without a third party. The blockchain has also been used in other industries like art, real estate, and even music. It is a decentralized ledger that can track ownership of digital assets. This proof of ownership and immutability provides the actual value.
How Are They Different From Cryptocurrencies?
An NFT is essentially a digital asset that you can trade. Unlike cryptocurrencies, which are fungible, each cryptocurrency is intrinsically the same as the next. NFTs have an intrinsic value and can be sold on platforms like the Ethereum blockchain, which seems to be the most prevalent technology used (although others are gaining traction).
Who Can Make An NFT?
NFTs are not just for artists and musicians, and in theory, anyone can create one. There are no restrictions on what you can create, how many people you need to collaborate with, or how much time it takes to make one. Furthermore, the rapid adoption of this new industry has spawned a raft of newly created NFT jobs that range from data analysts to marketing. In other words, it isn’t becoming a big business; it already is!
Where Can You Purchase NFTs?
NFTs are digital assets exchanged on the blockchain and bought and sold on decentralized exchanges like OpenSea or Jungle. However, while OpenSea has cornered the market and is currently the largest, many more are popping up, nipping at their heels. As the demand increases, so too will the exchanges that host them.
How Do You Pay For An NFT?
NFTs are typically bought and sold using cryptocurrency as the primary form of payment. And from these cryptocurrencies, it is generally Ethereum that is the most popular token used for the vast majority of transactions. However, this has caused some concentration among enthusiasts because of the high “gas fee” charged by the ETH blockchain. Users of the Ethereum blockchain pay gas fees to offset the cost of computing energy utilized for processing and validating transactions. The amount you pay will vary depending on the popularity of the NFT and, therefore, how high the fee is. Fortunately, when Ethereum 2.0 arrives (date is still TBD), these fees appear to become dramatically lower due to the proof of stake concept used to replace the older proof of work.
What Are The Uses Of NFTs?
In addition to representing real-world items such as artwork and real estate, NFTs can also serve as virtual representations. These tangible assets can be easily bought, sold, and traded by tokenizing them, thereby reducing fraud risks. In addition to representing individuals’ identities and property rights, NFTs can also represent business processes. In a nutshell, they are the newest way to cut out expensive and time-consuming intermediaries thanks to the blockchain. Despite these current use cases, several exciting developments on the horizon could fundamentally change the way people live, such as:
- Location-based NFTs
- Marketing perks
- Real estate title ownership
- Gaming (this one is already booming)
- Virtual reality cases
- Memorabilia and collectibles (think trading cards and sports merchandise)
What Makes NFTs Valuable?
A lot of benefits are offered by NFTs for both consumers and businesses. They make it difficult for competitors to replicate a product or service, which allows companies to create scarcity in their products. As a result, consumers become more loyal, and companies generate more revenue. Moreover, they allow content creators and artists to sell their intellectual property while retaining ownership. You can think of it like if Picasso personally signed a selection of prints of his most famous pieces. He still owns the art, but those who purchased a signed copy still have something intrinsically valuable.
Is It A Good Idea To Invest In NFTs?
This question really depends on your appetite for risk and what you want to achieve. After all, something is only valuable if:
- The owner sees personal value in it
- Others see value in it
If these two criteria are met, and you get in early on something making waves, you might find yourself sitting on something hot.
What Makes NFTs Controversial?
The main controversy surrounding NFTs is that they are still an unknown entity among most people, and there is a risk that the entire industry is a bubble waiting to burst. Nonetheless, their popularity is showing no signs of slowing down. As more people become aware of their use outside the art and collectible world, it could create a critical mass of acceptance that propels them into the mainstream.
NFTs are still somewhat unknown to the average Joe and even to some who have recently just got their heads around cryptocurrencies in general! However, they seem to be increasing in popularity every day. As they begin to show their true potential, you might find a surge in adoption that massively boosts their underlying price.
This article originally appeared at MoneyMiniBlog.