It sounds so confusing, doesn’t it?
Don’t worry; by the end of this article, you should understand the wide variety of potential non-fungible tokens offer and why they will become an integral part of our modern lives in the not-too-distant future.
Are you ready?
Awesome… So let’s learn all about Non-Fungible Tokens.
3 Concepts To Better Understand What NFT's are.
Before discussing the specifics of non-fungible tokens and the underlying technology, we must understand three critical concepts for the beauty of NFT’s to really sink in.
This article aims to have you feel the same excitement about NFTs that I experienced while researching.
But first, I want to discuss three fundamental concepts within the field of Non-Fungible tokens. These are:
- Subjective versus objective value
- Fungible versus non-fungible assets
- Definition of tokens
Let’s dive in, shall we?
Subjective value is the perception that an item has worth based on your beliefs, perceptions, or preferences.
For example, I have a $600USD roundtrip plane ticket to Iceland departing tomorrow and coming back a week.
If you cannot find a way to go tomorrow, or do not have an international passport, or are someone who has no interest in going to Iceland, then the (ticket) is worthless to you.
On the contrary, let’s say you can and want to hop on a plane to Iceland tomorrow, and the ticket was for a middle seat versus an aisle or window seat, then that would probably affect your perception of the ticket’s value.
Additionally, seating preference comes into the equation. Some people prefer aisle seats, while other people prefer window seats. Unless you’re someone who doesn’t care about their seat and would sit in any position on a plane, even if it’s in a middle seat, the location of your seat is another subjective value-layer to take into account.
So a lot of factors come into play when assessing the actual value of an airplane ticket. It’s not just about the ticket price; many different aspects contribute to the subjective valuation of this single transaction. Regardless of the ticket’s cost, people will attribute different values to it depending on the factors that determine their need and willingness to pay.
This next example is one of the craziest, in my opinion, out-of-this-world items with a lot of subjective value that I can almost guarantee every single person reading this will not have any value for whatsoever.
If you go to eBay, search for a baseball card, filter by pre-1942, and sort by the highest price. You will come across some, one of a kind madness, like this: $300,000 for a 100-year-old piece of printed paper with Ty Cobb’s face on it!
Now I don’t know about you but for most of us, paying $300,000 for a 100-year-old piece of paper sounds insane and just crazy, right?
I mean, you can buy a house for $300k…LOL
Not to mention that watching baseball to some of us is subjectively equally as fun as watching paint dry. Yet the fact that 161 people have viewed and are watching this card on eBay suggests that at least 161 people are willing and or considering paying $300,000 for this century-old printed piece of paper with Ty Cobb’s face on it, which means there’s a market for it.
One can consider a market as both physical and virtual. For example, there is an online marketplace called “eBay,” which hosts people from all over the world to sell their goods for profit or buy everything they need at lower prices thanks to competition between sellers.
There are also brick-and-mortar stores that serve this purpose in everyday life, such as grocery stores where one may purchase food items needed on a daily basis and other shops with more specialized products like car dealerships where one might find affordable vehicles of different brands.
Secondly, the term market can be used to describe people who have a desire to buy and sell products or services. This is an abstract use of the word ‘market,’ for example, with housing markets, where many buyers and sellers want houses.
The word “market” is often also used to ask whether or not a market exists for the product, which means are there enough people out there with interest in buying, selling, exchanging, or trading it? For example, when inventing new products that do not presently exist, entrepreneurs might conduct market tests.
This generally entails determining how many potential customers would want to buy the product and at what price they are willing to purchase it.
The concept that different people are willing to spend different amounts of money on all kinds of different things they want to buy is a critical point in understanding what subjective value and markets really mean.
Sounds simple enough, right?
Let’s learn something else we already know but may have forgotten.
Firstly, what is an asset? An asset is a fancy way of saying something is useful or valuable. Your assets can be something physical- like gold or silver, and it could also be something digital, such as bitcoin. Your asset might even be intellectual such as a retirement plan or expertise. It can even be more tangible than that; for example – your computer or cell phone that you use to generate an income.
Next, let’s talk about the difference between fungible assets and non-fungible assets. Assets that are interchangeable have fungibility. This means an asset is substitutable with a similar type of asset, as in a $100 dollar bill for another $100 dollar bill with the same value. Unlike many examples of fungible items, once they’ve been exchanged, their inherent or previous value doesn’t change despite the exchange has occurred.
Another example of fungible assets is Ethereum and Bitcoin. One bitcoin is the same as any other bitcoin in terms of value. This applies to ether as well. One ether is the same as another in that they are both worth the same. Meanwhile, Non-fungible assets are not interchangeable, and they cannot be broken down into smaller parts.
For example, if I exchanged my family dog for your family’s pet, it would not be an equal trade of value. Even if they were the same breed, each animal has its own unique personality and memories that are impossible to duplicate.
Imagine if you could buy half of a house or 30% of a car. It doesn’t sound like it would be worth the same as buying one-hundred percent of it. Well, that’s because these are non-fungible assets and not fungible assets.
Furthermore, there are semi-fungible assets as well. One example of a semi-fungible token is an airplane ticket. Although it looks and functions similarly, each ticket for the plane represents one specific seat on the plane – like where you will sit in terms of row or aisle number versus middle section seats.
Additionally, concert tickets can also represent semi-fungible tokens as well since they may dictate which seat you will occupy during your event.
What Are Tokens?
A token is a physical or digital item that people can exchange for goods or services. In cryptocurrency and Blockchain technology, tokens represent value in a number of ways.
They can act like stakes that give you voting rights, tolls to use the system’s resources, or currencies for purchases. Tokens could also be used as certificates representing ownership over something tangible (e.g., gold) or multifunctional within an ecosystem by being able to unlock other benefits such as access to exclusive content through their usage.
Please take note that the token doesn’t have value in and of itself, yet the value comes from the asset it represents. A gift card would be an example of a token. Gift cards are not valuable in and of themselves, but they represent the value that you can exchange or redeem for specific goods or services later.
And when we create and assign a token to a good, service, or any of the aforementioned forms of value, it is called tokenization.
Now that you’ve learned about the three foundational concepts of NFTs, subjective value, non-fungibility, and tokens, let’s discuss tokenization on blockchain technology!
What Is Blockchain?
So, what is Blockchain? Blockchain is a new form of data storage where transactions or records are stored on computers all over the world. There are three features that make Blockchain unique: decentralization, transparency, and immutability.
Let us break these three features down in further detail, shall we
The concept of decentralization in the context of Blockchain is twofold. One, it means that data is stored and recorded on multiple devices around the world as opposed to one central place. Two, decentralization also means that no one person or company can control the data record and storage process.
Instead, Blockchain allows for a more decentralized way of recording, storing, and managing data. Whereas traditional centralized entities like the IRS or JP Morgan get to decide which servers to use as well as where they are located and what software is used to protect their data, Blockchain gives each computer on the network a part in keeping records secure.
This ensures that no single entity has control of overall information within this new system- making it much harder for hackers to invade these systems than before.
As a last measure, any changes or updates to the blockchain protocol can only be applied through a consensus process that no single entity has control over.
And that, my friend, is the essence of decentralization.
What is a non fungible token or NFT?
Non-fungible tokens are digital assets that cannot be swapped or traded for another token of the same type. For instance, they could represent a ticket to an event, digital pieces of art, or in-game items such as weapons and armor from games like League Of Legends.
Non-fungible tokens can also take on some real-world value too (i.e., property). They’re used by organizations today to protect against fraud and counterfeit goods, which is becoming more common these days with computer-generated images being so readily available now, thanks to advances in technology.
What makes NFTs so unique and special?
Now pay attention because this is what makes NFTs so exciting and unique!
Soon you will understand why NFTs are so special and why they have the potential to revolutionize everything we know about digital assets. Furthermore, we will discuss how the Blockchain is a revolutionary technology that adds unique properties to digital assets, such as NFTs, by giving people ownership, management permissions, and transferability on a decentralized, transparent platform.
But first, remember when I mentioned baseball cards for sale on eBay earlier? Well, right now, there’s a game called Fortnite that allows players to buy skins for their characters. I still remember the first time I saw a Fortnite skin. In an article about how people can buy skins that change what their player looks like, it blew my mind to think these changes were only aesthetic; they did nothing at all for your character’s attributes or abilities, yet gamers still buy them.
But what do Fortnite skins have to do with NFTs?
For starters, you might think that if you buy a Fortnite skin and then want to turn around and sell it on eBay or something like a baseball card, there would be no problem. But the reality is different – digital assets are surprisingly difficult to transfer from one person to another.
However, with Blockchain Technology lending six fundamental characteristics onto digital assets, these issues can easily be solved.
These features are all based on immutability and include standardization, interoperability, tradeability, liquidity, scarcity, programmability, and authenticity.
But before I go into further detail about these key important features, let’s take a look at some examples of NFTs.
Examples Of NFTs currently in the marketplace
Non-fungible tokens are the hottest new thing in tech. They’re a whole new type of cryptocurrency that can represent anything from your favorite sports team to individual collectible items like baseball cards or fine art paintings.
To demonstrate, we’ll take a look at Opensea.io — one of the first NFT marketplaces on earth where people can buy and sell these digital assets with each other safely and securely online without any involvement by third parties (like eBay).
Using the browse button and drop-down category filter on Opensea’s website will allow you to see a wide variety of NFTs for sale. These various types of NFTs include art, domain names, trading cards, virtual worlds, collectibles, and much more.
How Blockchain makes NFTs more useful
Blockchain has six fundamental properties that make digital assets more unique and valuable in the future. These include:
The problem with standardizing traditional digital assets is that there isn’t a single foundation they can all exist on.
An example of this would be how electronics concert tickets are only available for purchase on Ticketmaster’s platform; meanwhile, Fornite skins are available soley on Fortnite’s platform.
As a result, there are many places digital assets exist.
However, tokenizing digital assets on the Blockchain helps users create NFTs with set standards and uniformity, which unites the diverse aspects of NFTs like ownership, transfer, access, and control onto one unified system.
To illustrate this, let’s imagine for a second that you buy some virtual property on Decentraland, and then you head on over to Opensea.io to buy a digital house and some artwork.
Because these NFTs, despite being three separate assets, are tokenized using the same network via Blockchain, they all interoperate with one another. Meaning the house can be set on the virtual land, and the artwork can be displayed inside the house.
And in the off chance that Fortnite ever decides to adopt this new technology, you could potentially hang your fancy new Fortnite skin up in the closet of your digital home too.
Interoperability essentially means that because all NFTs utilized the same standards and function on the same platform, that being the Ethereum platform, we can avoid the issues I mentioned earlier with Ticketmaster and Fornite existing on totally separate platforms.
With the interoperability property that Blockchain provides, NFT’s can be easily moved across multiple ecosystems. When someone creates an NFT, it is immediately viewable and tradeable on all marketplaces due to the standardization of data recorded in blockchains.
Lastly, interoperability enables free trade on open markets, which brings us to our next key feature that the Blockchain offers to NFTs called tradeability.
Tradability is the ability for a good or service to be sold in another location distant from where it was produced. Non-tradable goods can’t be sold in other locations and are therefore limited by their current market.
Now for the first time in recorded history, users can create and launch NFTs seamlessly across multiple marketplaces, making them available to the entire blockchain ecosystem.
This allows users the ability to buy, sell, trade, bid, bundle, and auction NFTs in exchange for cryptocurrencies. This will pave the way for us to evolve from centralized third-party platforms like eBay or gaming platforms such as Fortnite, which would lead to a more free and open marketplace.
With NFTs having instant tradeability built into them, the Blockchain can offer other key benefits such as liquidity.
Liquidity is just another fancy term the finance sector uses to describe how active a market is and can also determine how many people are buying and selling and at what interval in the market.
As mentioned, NFTs can be traded in an instant across multiple markets, which can lead to high liquidity. High liquidity means items on the marketplace change hands frequently, and prices tend not to fluctuate much.
Bitcoin is an excellent example of an asset with high liquidity. As soon as you buy or sell bitcoin at the market price, transactions happen near instantaneously because there are plenty of buyers and sellers in the marketplace.
You can turn your bitcoins into cash within seconds on exchanges like Crypto.com and Coinbase with high liquidity levels.
On the contrary, assets such as a house can be considered low liquidity assets. When a home for sale, it can take weeks, even months, before the house sells. Even if the house is located in an area with a booming real estate market, it’s still nowhere near as fast to convert those assets back into cash when compared to Bitcoin, which only requires a few taps of your phone.
The future of NFTs is brighter than ever, thanks to the fast, efficient tradeability offered by Blockchain. This, in turn, will result in higher liquidity for the NFT marketplaces.
We’ve already discussed how immutability is an essential aspect of blockchain technology and how data, once verified and stored on the Blockchain, cannot be altered.
When it comes to NFTs, immutability is a key factor in ensuring the authenticity of a digital asset as well as proving its scarcity. For example, let’s say a video game developer wants to offer a limited amount of a certain type of weapon available in a game to a maximum quantity of 5.
Thanks to the immutable aspect of Blockchain, it would be impossible for anyone to back and change the quantity back to 100 or anything similar once it’s verified on the Blockchain.
Lastly and one of the most exciting properties of Blockchain offers to NFTs is programmability. Non-fungible tokens are fully programmable, meaning that they can be used for a plethora of complex tasks like forging, crafting, redeeming, and much more. It’s incredible to think about what is possible with the range of possibilities open to you when creating your NFT on blockchain technology.
What are NFT-Non Fungible Tokens Going To Used For In The Future?
Now that we understand how blockchain technology adds unique, value-driving properties to non-fungible tokens, let’s talk about what the future could hold for NFT’s across multiple industries. Is it possible that this new form of digital assets will have an effect on everything from retail and fashion to even interior design?
We can’t be sure just yet, but one thing is certain: there are endless possibilities!
With that said, we’re already witnessing the true power of NFTs across many sectors, including but not limited to art, collectibles, domains, gaming, and virtual worlds.
And even though NFTs have only been in the spotlight for just a few years, their potential is limitless when you keep in mind their core properties, that being, verifiable digital scarcity, ownership, indivisibility, interoperability, and transferability.
As mentioned, the gaming industry will be drastically impacted by NFTs, as these assets create a more tangible and rewarding experience while also fostering new economies within the games themselves. Players can now generate income from time spent in-game or sell their unique tokens that enrich the game itself.
Game developers will start creating new ways for players to interact with games and incentivize them in a way that benefits game developers, publishers, and users.
Filmmakers and musicians can publish their work registered on the Blockchain as an NFT to protect against copyright infringement or manage performance rights.
This removes the need for intermediaries like agents and managers. With this new system, funds are sent directly to the rightful creators of content without third parties taking a share.
NFTs are programmable tokens that can contain cryptocurrencies or other digitally available assets.
NFTs can also be utilized to trade or redeem physical assets too. The perfect example of this was when the Unisocks Exchange created 315 SOCKS NFTs. Users that bought this one of a kind NFT were able to redeem it for a pair of socks, trade it, or continue to hold in the hope the asset’s price would appreciate and sell or redeem at a later date.
Just about anything you can think of in the real world can be tokenized as a collectible, including athletes, celebrities, and even fictional characters.
Almost anything in the real world can be tokenized as collectibles or similar, like athletes, celebrities, and fictional characters. With the help of the Blockchain, now ownership of real-world collectibles can be easily verified, transferred, and stored without any issues and near impossible to forge. NFTs can represent many different things, like official documentation such as birth certificates, academic credentials, warranties, and more.
If a famous person creates an NFT and they trade it with others, the value of that NFT could grow exponentially. Like if Elon Musk created an NFT and maybe at some point in its ownership history, Vitalik Buterin owned it at some point could have some subjective value to someone.
As advances in non-fungible tokens (NFTs) make it possible to own an asset from afar, the concept of ownership will evolve. As for me, I genuinely believe NFTs will undoubtedly bring new people into the cryptocurrency market and drive the adoption of blockchain tech.
However, were are still very early in the adoption phase as of NFTs and Blockchain. With that said, let’s look at some of the know issues we currently face around NFTs to understand the space entirely.
Disadvantages Of NFTs
So far, I’ve talked about all the benefits of NFTs, but the truth is they still have a ways to go before they hit the mainstream.
For starters, building decentralized applications for non-fungible tokens is challenging and time-consuming. As such, I see that the user experience and user interface in current NFT applications aren’t straightforward or simple enough for people without prior blockchain knowledge to jump in and start using easily.
Secondly, some NFTs are created and listed on decentralized markets that could experience something similar to the Defi food craze, where a token’s valuation skyrockets before quickly crashing. The recent hype around NFTs may create a scenario where buyers are stuck with the NFT for an asset that loses traction or is deemed worthless.
Additionally, most NFT projects do not retain long-term users. And since there are few people using NFTs currently, lack of liquidity could stunt the ecosystem’s growth.
Lastly, despite NFTs being deployed on Blockchain, where they are permanently stored and recorded, we still could face issues with accessing the marketplaces. For example, currently, the NFTs markets utilize sites like Opensea.io to buy, sell, and trade NFTs. However, if that site were to go down for whatever reason, then we wouldn’t have access to the marketplace.
So someone, please take the honor of creating a truly decentralized marketplace for these unique, one of a kind assets.
NFT FAQ: Top 5 Questions
When it comes to investing in NFTs, there are a few ways to go about it. You can buy the NFT you are interested in from a marketplace if it is available. You could also purchase an ERC-20 token that represents another NFT on the Blockchain and hope its value increases over time.
Creating an NFT is relatively easy, but the process takes time. You’ll need to have a good idea of what you want your NFT to do before going about the creative process because there are many factors such as blockchain compatibility and ERC-20 compliance that must be considered first.
You can buy NFTs in a variety of places, but it is not as easy as buying other assets. You’ll find the best deals on NFTs if you purchase them from decentralized exchanges or marketplaces that specialize in trading these unique tokens. Sites like OpenSea, Raible, and SuperRare are good starting points if you want to find a place to buy or sell your NFTs.
NFTs are costly because they’re so rare. One of the most significant factors that determine how much an NFT is worth is its rarity, which means there may be only one in circulation or a few hundred at any given time.
As with anything else, prices vary from token to token, but some examples include CryptoKitties (which comes with adorable artwork), Spells of Genesis cards (that have codes on them), and Decentraland plots of virtual land.