In the rapidly evolving blockchain industry, nonfungible tokens (NFTs) are on the rise as tokens that are limited in their digital scarcity. NFTs are bridging assets across various collectible industries, such as gaming, sports, and fine arts closer to blockchain technology. But what exactly are NFTs, and how are their impacts rippling through the blockchain world?
What are Nonfungible Tokens (NFTs)?
Nonfungible tokens (NFTs), also called crypto collectibles or nifty, are digital assets managed by blockchain technology. Each token has a unique individual specification that is represented by an unadulterated record on the blockchain. While NFTs can be created and issued on a variety of frameworks, a large number of them are ERC-721 tokens with a smart contract code embedded with unique details. Essentially, NFTs are the tokenized version of real or digital assets.
NFTs can only be sold, exchanged and transferred in their whole form instead of being divided into smaller denominations. The supply of NFTs can also be limited to a certain amount, which makes NFTs rare and attractive for users to acquire. NFTs are used in storing crypto collectibles, as well as providing a means of authenticity and ownership.
Reshaping the Face of the Collectibles Industry
While the concept of assets-turned-NFTs might sound novel, nonfungible assets exist everywhere in our daily life. Nonfungibility means an asset or item is not transferable to another asset, even if they are of the same kind. A ticket on the front row of a live concert, an Instagram account handle, a baseball with an autograph of a star athlete are all unique collectibles. Avid gamers might often encounter rare and desirable in-game items that everyone wants to have their hands on. Art collectors are willing to shell out millions of dollars on an authentic, one-of-a-kind art masterpiece.
The collectibles industry has been in existence throughout history in both physical and digital forms. However, as NFTs are brought into life, the industry is undergoing an unprecedented transformation with many benefits from NFTs.
- Increase Movement and Tradability of Assets
NFTs allow coveted items in gaming and other Internet platforms to become easily tradable and transferable among users. Users can freely sell and exchange items across ecosystems. Without being bound to the walls of the original environment, collectible tokens become much more accessible for whoever wants them in an open peer-to-peer marketplace.
In addition, users can also choose to make the transaction in a wide pool of currencies in their preferred method, be it auctioning, bidding, bundling, and more. As a result, tokenized assets will become increasingly liquid thanks to their instant tradability.
- Protect the Value of Tokenized Assets
Unlike a physical asset that comes with the risk of theft, loss or illegal duplication, a tokenized asset helps preserve the authenticity and uniqueness of the collectible, such as an original artwork. This helps protect the ownership and rights of the creator. In addition, as properties NFTs are encoded on chain and cannot be modified being issued, it is viable to put the cap on the supply of NFTs. The value of collectibles coming from their scarcity is therefore protected and preserved.
- Bring Assets to a Unified Form with Possibilities to Evolve
Current digital assets do not exist in the same form, such as the systematic structure of a website domain is different from that of a concert ticketing platform, which creates friction when users want to put these assets up for transfer or exchange. This issue can be resolved as the utilization of NFTs brings these assets together through an amalgamation of uniform standards. As a result, tokenized assets can be owned, transferred, managed and displayed seamlessly.
It is also expected that developers can further expand on the technical possibilities of NFTs thanks to its programmability. NFTs continue to evolve through complicated mechanics as they are forged, redeemed, randomly generated, etc. As improvements of NFTs are continuing to be made, NFTs are certainly not limited to a certain blockchain technology and ecosystem.
Notable NFT Projects
A variety of NFT projects are floating on the blockchain, but which ones are truly groundbreaking? This depends on the size of the community involved in the project (how many users are there?) and the financial value of the project (how much USD is involved in transactions on the platform?).
CryptoKitties, a famous NFT project is an Ethereum-based blockchain game created by Axiom Zen in 2017. It gives the name to itself as one of the first attempts of putting blockchain technology into recreation. Players spend real money on ETH in order to collect, breed, buy and sell virtual cats on the CryptoKitties market. Each virtual cat, or token, has unique characteristics called cattributes. Some felines on the game are rarer than others, giving them a higher asset value on the marketplace. In 2018, a virtual cat named Dragon was sold for a record-breaking price of 600 ETH, or an equivalent of $170,000 in the form of an NFT, making it perhaps the most exorbitant in-app purchase up to date.
In a similar vein, Decentraland is a decentralized virtual platform also run on Ethereum blockchain. This NFT project started out as a proof-of-concept. Through purchasing with MANA token, Decentraland’s currency, users of the platform are given ownership of real estate in the form of land parcels called LAND. Then, users can create, own, exchange and monetize digital real estate assets on the platform. A high-profile NFT transaction on Decentraland occurred in 2019. Estate 331, named “The Secret of Satoshis Tea Garden” was sold for 1,299,999 MANA, or $80,663 at the time.
The Future of NFTs
As a spin-off from the commonly known collectibles in the real world, NFTs can be a gateway means to bring millions of new users to the world of crypto and blockchain technology. Players in gaming economies can become potential new blockchain users as collectible in-game items are turned into NFTs. In addition to the virtual world of gaming, real-world assets such as real estate and artworks can also be tokenized and traded on the blockchain. NFTs are likely to offer the much-needed liquidity to these markets and bring in previously untapped revenue streams.
While the market size of NFTs is still quite small as the secondary trading volume is at 2-3 million USD, the technology used in NFTs is expected to bring about new changes to not only the collectibles industry, but also the blockchain world in upcoming years. Until then, NFTs will undergo many drastic improvements in infrastructure and user interface in order to penetrate better into mainstream markets for curious new users of blockchain.
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