What are NFTs (non-fungible tokens)?

NFTs, or non-fungible tokens, are causing quite a stir in the crypto community. But we know that the world of cryptocurrencies frequently resorts to trends and idioms that generate great interest, and speculation, before suddenly disappearing. The ability to analyze a trend and detect which way the wind is blowing is a crucial skill for anyone in the world of finance, and especially cryptocurrency. First of all, we must know what we have in our hands and ask ourselves, is there a solid foundation behind the acronym?

What is a consumable good?

It would be a mistake to think that NFTs are nothing more than the new trendy cryptocurrency. As Alex Althausen, CEO of StormGain explains, non-fungible tokens were born as digital collectibles in multiplayer games. NFTs work very differently from Bitcoin, Ethereum, and other cryptocurrencies. The most significant fact about NFTs is that they are something unique. And this uniqueness does not apply to NFTs as a group, but to each token individually.

Fungibility is that property according to which an asset can be exchanged for another asset of the same type without any difference in its value. Most cryptocurrencies and fiat currencies are fungible, such as Bitcoin, Ethereum, Monero, and Ripple. If you have one Bitcoin and your friend has another, you can send one Bitcoin to each other and nothing would change: you would still have one Bitcoin each.

But TNFs are very different. While it is true that they are generated cryptographically (using the Ethereum blockchain mainly) and attached to certain dApps, each NFT has a unique identifier on the blockchain, which makes it unique. In this case, an NFT cannot be automatically exchanged for another similar asset. Furthermore, the NFTs are indivisible. A Bitcoin can be divided into smaller units, but this is not the case with an NFT.

Thus, while BTC, XRP, or other cryptocurrencies can be compared to money, an NFT more closely resembles a valuable piece of art, antiques, festival tickets, or collectors’ items such as a team jersey signed by your favorite player. Its value lies in its uniqueness. We must understand these tokens as distinctive objects rather than as simple coins.

The reason for the success of NFT

NFTs first caught the attention of the cryptocurrency industry with Dapper Labs’ CryptoKitties, a game that lets you buy, raise, collect and sell digital kittens. Every kitten is an NFT. Other blockchain-based games like Blockchain Heroes and Gods Unchained also use NFT as their in-game digital objects.

The NFTs also made the leap into the world of digital art. Digital artwork in the form of NFT tokens can be purchased and traded through platforms such as Rarible and SuperRare. Even in the highest ranks of traditional art dealers, some fine forgeries have managed to fool expert collectors, who have lost thousands upon thousands of dollars. With NFT this type of scam is not possible. All digital artworks represented by an NFT are 100% authentic.

Why are non-fungible tokens so useful?

You can use NFT tokens for all those companies where the uniqueness of the product is a priority, and where the potential for counterfeiting or piracy poses a significant risk to its value. Among these types of products we find domain names, certificates of studies or ownership, medical reports, tickets for festivals, valuable business data, patents, etc.

The ability to directly auction your digital artwork without the need for galleries or agents could be a great incentive for authors and a new way to generate income. Copyright can be programmed into an NFT and automatically enforced through a smart contract, so that the author of the work receives his share each time his creation changes hands. This gives great power and autonomy to the author of these works, who would otherwise be forced to sell them to an agent without ever receiving any sum when said agent sold his works of art at auction, obtaining great benefits in the process.

The intrinsic ability that allows the primary issuer of an NFT to generate revenue through secondary market sales could transform multi-user games or virtual communities that otherwise tend to accumulate limited-issue digital items or seek to limit sales in the market. Secondary market. If it were somehow possible to ensure that the author of the work would receive the relevant commission, the holders of intellectual property rights could choose to allow the free resale of their digital items without fear of losing profits.

Who buys NFT at more than $ 500 per token?

When the digital age began, we got used to the devaluation of digital items. However, the ecosystem has matured and money is part of both the digital space and the physical world. Some NFT buyers are just collectors enjoying their hobbies. Some others hope to make a profit by selling a unique item at auction. There is a real demand. For example, CryptoPunks, a digital art collection made up of “punk” portraits in pixelated images, reported that the median sale price of one of its punk portraits in the past year was 10.83 ETH ($ 17,307.87), while the total value of his punks sold in the last year was 69,742.36 ETH (111,422,479.26 dollars). The CryptoKitty Dragon are also priced at 600 EHT. That’s $ 946,000!

NFT adherents also include visionaries seeking to position themselves in the digital space and explore the possibilities of virtual reality. Virtual reality art galleries could be used to display NFT authenticated digital works. But, in addition, NFT tokens could also be used to protect real estate in digital environments. Worlds inspired by the Second Life video game, such as Decentraland and Somnium Space VR, use NFT to establish digital real estate ownership. Landlords can offer services and collect rent.

Are NFTs a good investment?

Depends. The main element that defines NFT is its uniqueness, so every interested investor should carefully study the qualities and current circumstances of each type of NFT. Many of these tokens have a community character, whether these communities are made up of art fans or inhabitants of virtual worlds. In fact, knowing the communities involved will allow potential investors to understand where the value currently resides and in what direction it could be headed in the future. Therefore, we can and must understand NFT tokens as something similar to works of art, collectors’ items or real estate; More than a bargaining chip, NFTs are works of art that can be invested for profit.

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