Non-fungible tokens are a form of digital asset that represent a unique digital asset or the tokenized form of a physical asset. Examples include a one-of-a-kind piece of digital art created by a famous artist or the deed to a house whose details have been recorded on a blockchain.
NFTs can also satisfy the human desire to collect things like rare pokemon cards or limited edition vinyls but with a modern twist that has arisen out of the digital revolution.
Fungibility refers to the ability to interchange one asset with another asset of the same type and is an ideal trait for an asset that is designed to be a medium of exchange. One Bitcoin can always be exchanged with another Bitcoin, just like one ten-dollar bill is interchangeable with any other ten-dollar bill.
Non-fungible tokens, on the other hand, are designed to be unique in their own right and cannot be faked or copied, thanks to the security that blockchain technology provides. Due to these properties, NFTs are ideal candidates to function as proof of ownership and for authentication in the growing digital universe.
The most popular method for creating NFTs is using the ERC-721 token standard for the issuance and trading of non-fungible assets on the Ethereum network.
Once minted, NFTs essentially act like a digital certificate of authenticity and can be used to prove ownership by demonstrating control of the digital wallet where the NFT is held.
Prior to the creation of NFT technology on a blockchain, it was not possible to authenticate a digital asset due to the ability to copy and widely distribute digital files. With NFTs functioning as digital certificates of authenticity, it is now possible to easily verify legitimacy, NFT value, and other important data such as the history of prior owners, buy & sell prices and the original creator.
NFTs can come in various forms, such as an image, a movie, a tweet, a song, a meme, or digital representations of physical objects ranging from a collectible baseball card to the deed for a piece of real estate.
There are a variety of use cases for NFTs once they have been encoded into a smart contract and minted, and these use cases vary across different NFT collections. Across the expanding cryptocurrency ecosystem, NFTs have been integrated into decentralized applications as a way to issue unique digital items and crypto-collectibles. Applications include the creation of collectible items, art, investment products, music, memberships and gaming tokens, to name a few.
The Gaming sector is especially fitting for NFT technology as the ability to tokenize gaming assets is a long sought-after capability and has the potential to be a billion-dollar industry
Virtual worlds and 3D landscapes also provide ample opportunities for the integration of non-fungible tokens as users spend more of their time in the Metaverse and virtual real estate grows in popularity.
Low liquidity markets, such as fine art, real estate, and rare collectible items will benefit from the integration of NFT technology as it will open them up to an international stage of buyers and sellers where transactions can be performed in a permissionless environment.
And finally, the realm of personal information and digital identities is also set for a major evolution thanks to NFTs, as storing identification and ownership data on secure blockchain networks that are immutable will bring a new level of privacy and data integrity to the global economy.
If you’re wondering ‘what makes an NFT valuable?,’ the answer is simple; the true value in an NFT comes from what the token represents. NFTs can be created for anything that is one-of-a-kind and requires proof of ownership, but that doesn't always make an NFT valuable.
Apart from their uniqueness, some of the other valuable traits that NFTs carry include being indivisible, tradable, fraud-proof, scarce and programmable. Smart contract technology enables all sorts of interesting possibilities, including the ability for creators to specify what royalties will be paid to them whenever an NFT is resold, offering a way for artists and musicians to make a living as creators.
In the end, when all things are considered, an NFT’s value is really based on what someone is willing to pay for it (or perceived value). Keeping this in mind, and as with all things in crypto, it is up to each individual to do their due diligence and research any NFT they are interested in acquiring before making a purchase because once the NFT lands in your wallet, you own it and there are no charge-backs.
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