What are NFTs? And Why are They so Popular?

Non-Fungible Tokens. NFTs. People have been talking about them since Amitabh Bachan said he’s launching his own NFT or since they saw the new Spider-Man movie wherein Stan Lee first announced the launch of his NFT. So what is this NFT?

In simple words, an NFT is a token on the blockchain which acts as a digital certificate of authenticity. In simpler terms, NFT is a way for tagging something in the digital world as your own. NFT can be for anything digital, an image, a video clip, an avatar or equipment in a game, etc. NFT are also cryptocurrencies (mainly based on the Ethereum network) but they are non-fungible.

The fungibility of an asset is its ability to be exchanged or substituted with an asset of similar value. A cryptocurrency can be exchanged with another since they are fungible but not NFTs. For example, a person may exchange a Bitcoin for another since they are somehow the same, but not NFTs. An NFT of Mona Lisa will not be exchanged with another NFT since it is unique in itself.

An NFT has unique identification codes and metadata that differentiate it from other NFTs. Cryptocurrencies are also unique in the way that they all have different data on each of them but to those who do not care for the data, the cryptocurrency is fungible. 

What are the uses of NFTs?

Presently, NFTs are used mainly for artwork or game items. However, NFTs can be used for so much more. This is not limited to artwork, it could be for patents, intellectual properties, industrial processes, etc. Imagine using a QR code on a product and finding the entire history, from production to shipment, from a code. NFTs can be used to store time-stamped data about real estate just by scanning a code. Real estate seems to be one of the most appropriate markets for using NFTs. Most important of all, people can keep their medical data stored using NFTs.

However, currently, NFTs are used mainly for artwork. NFT are basically just a way to brag about owning a digital file the use of which is nothing but to show it off.

So what can the owner of an NFT do?

Sell it or keep it for its sake. A common argument is that the uniqueness of an NFT is rendered moot since a person can view the artwork or download a copy of that artwork online. The fundamental purpose of an NFT is to prove ownership and originality. An owner cannot copy, reproduce or prepare derivative works out of the NFT, he can only sell the NFT or loan it out for display in art galleries. Another option is to keep it as an investment, but therein lies an inherent issue. NFT is not a very liquid investment since tastes keep changing and an NFT you currently own may not be able to be sold because people lost interest in it.

How big are NFTs?

NFTs are huge. In 2018, the marketplace for NFTs was worth around $41 million. In 2020, when demand for NFTs rose, the marketplace shot up to a value of $338 million. The interest and involvement in them is growing rapidly. 

  • Amitabh Bachan has launched his own string of NFTs wherein he sells images and Mp3 files of his father’s poems in his own voice. 
  • Stan Lee’s NFTs based on his Indian superhero “Chakra the Invincible” was launched on 27th and 28th December, all of which were sold out in 51 and 49 seconds respectively.
  • Twitter CEO Jack Dorsey’s NFT, an image of his first tweet, containing the words “Just setting up my Twitter” was sold for $2.9 million.
  • An artist named Beeple created an NFT which was a collage of 5,000 of his artworks. That NFT was sold for $69 million.
  • There are several online platforms such as NBA Top Shot and Crypto Kitties wherein NFTs are created. NBA Top Shot is a place where a nice shot by an NBA player is converted into an NFT, video, or image, which is then sold to customers. Crypto Kitties is a site where people raise digital cats online. People spend insane amounts of funds, sometimes upwards of $100,000, to raise them, and later on, these cats are converted into NFTs and sold.

Where can I buy them?

Anyone interested can buy or sell NFTs either in centralized or decentralized marketplaces.

Centralized marketplaces, such as Coinbase or FTX, are a good deal for beginners since they assist buyers and sellers. They provide brand and distribution to the NFTs while assisting the owners in maintaining the NFT. However, the greatest disadvantage of a centralized marketplace is that they bring in regulations and limitations which defeats the whole purpose.

There are several decentralized marketplaces like OpenSea, Rarible, and SuperRare which can be used by people who are interested. However, safety is a major concern as several users lost NFTs worth nearly $1.7 million from OpenSea in a phishing attack recently.

What is the future of NFTs?

Skeptics are wondering whether these assets deserve such value when all one needs to do to see these things is an internet connection. Its existence in the field of art is certainly questionable, but the application of this tech is limitless in other areas.

As stated above, it can be used for medical purposes, intellectual properties, real estate and so much more.

There exists a decentralized marketplace called “NFTfi” wherein an NFT holder can get loans by offering their NFTs as collateral and receive the loan in the form of Ethereum or Dai coin. Moreover, NFTs are linked to one of the biggest ideas in the works: Metaverse. NFT is being used as entry tickets to the metaverse in several projects. Moreover, in the metaverse, wherein you operate via your avatars, your avatar will be an NFT as well.

This technology is currently in its infancy and is not being used up to its potential. Only time will tell what happens. 

Article by Aman Agarwal

This article is brought to you in association with jobaaj.com

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