Non-fungible tokens: fundamentals, benefits and popular trends
The NFT craze has swamped the digital world over the last few years. According to BusinessWire, the NFT market is projected to hit over $21 billion in 2022. By 2026, the figure is slated to become even more impressive – over $82 billion in 2026.
The rapid development of new NFT platforms, blockchain technologies, and a sense of novelty are shaping the market. Backed by world-leading tech companies and tech scions, the landscape of non-fungible tokens is projected to become even more vibrant.
But what is a non-fungible token? And what makes it different from other tech wonders? Let’s find out.
The fundamentals of NFTs
A non-fungible token is an asset that has a specific identity and can be transferred between the parties. Non-fungibles are distinct from fungibles in that they are one of a kind, much like physical art pieces. They’re not interchangeable, and they don’t represent ownership of anything else.
From a technical perspective, NFTs rely on the blockchain ecosystem. Blockchain holds an irrevocable digital certificate of ownership and authenticity for a given asset. Non-fungible tokens are unique, unlike any other crypto assets. They’re not interchangeable, and they don’t represent ownership of anything else but themselves.
NFTs are now widely used across industries. From gaming to trading, they have become a valuable addition to the investment portfolios of the largest companies.
What makes NFTs unique?
Cryptographic tokens have emerged as a valuable add-on for artists who want to tokenize their real-world artworks. Today, artists get a whole wealth of benefits that come from NFTs. Thanks to unalterable identifiers every artist can now:
- prove the ownership that can be verified by everyone on the blockchain;
- trace the token – while the file can have several copies, each of them will be linked to the original token.;
- sell a collectible on any marketplace with no art agents or any other intermediaries;
- receive royalties from each subsequent resale of their work, as long as this is provided for in the code of the NFT tied to it.
These advantages are most relevant for digital artists, since it used to be virtually impossible to confirm the authenticity of creations – be they paintings, drawings, animations, videos, or even music tracks. A copied picture was no different from its original, which meant that its value was not backed up by anything.
NFTs benefit cover art enthusiasts, art buyers, and avid art collectors. Thus, holders of tokenized assets can:
- prove that they own a collectible – this information is recorded on the blockchain;
- sell the token and capitalize on it if it goes up in value (in some cases, a percentage of the proceeds will go to the artist);
- keep the file in the collection and display it on special platforms.
Overall, tokenization can have a positive effect on the art market as a whole since it democratizes the art space.
How can NFTs change the art market?
NFTs have the potential to change the art market. First and foremost, they can democratize access to art by making it possible for anyone to own a digital asset linked to the artwork without having to pay a high premium. NFTs can also be used as a trading mechanism for physical works of art — both real and digital.
Artists can monetize their work by creating NFTs of their original pieces. This provides them with another form of income and allows them to reach a larger audience than was previously available when their work was only available in physical form.
The ability to create an NFT from any piece of art means that collectors can purchase and trade assets that represent pieces they love, but that they may not be able to afford or even physically obtain due to limited availability. For example, someone who loves Van Gogh’s Sunflowers might not be able to afford one of his paintings but could still buy an NFT token representing one of his paintings and sell it later if they wanted to make a profit on their investment.
Overall, NFTs boast unmatched opportunities outside of the traditionally regulated market and open the door for anyone who knows how to “mint” their works.
What is the difference between NFTs and cryptocurrencies?
NFTs are a digital asset class that is defined by scarcity, fungibility, and immutability. They differ from other types of cryptocurrency in that they can be used as a collectible or an item of personal value.
NFTs are digital assets that you can buy, sell or trade on a blockchain-based platform. The most common types of NFTs are crypto collectibles, like CryptoKitties, which have their own unique ‘DNA’ and can breed with other cats. You can also use NFTs for things like voting and polling or even as virtual gifts for friends.
Cryptocurrency is a type of digital currency used for transactions over the internet. It’s usually created using cryptography techniques that ensure security and anonymity when transacting between parties.
Cryptocurrency differs from fiat currency (dollars, euros) in that it isn’t backed by any government or central bank. Instead, it relies on consensus among its users to determine how much each ‘coin’ is worth at any given time based on supply and demand factors within the market itself.
Summing up, here is what makes non-fungibles different from cryptocurrency.
- NFTs are digital assets that can be owned by a blockchain address.
- NFTs are not “proof of ownership” but rather, they are proof of rights to a particular asset. This means that you don’t own any NFTs directly, they are just claims on the ownership of an underlying asset.
- NFTs do not have value intrinsically, unlike cryptocurrency which has a monetary value based on its utility as a medium of exchange and store of value.
- The market price of an NFT is determined by demand and supply like any other tradable asset, but unlike cryptocurrencies which derive their value from their utility as money or stores of value, NFTs derive their value from their utility as collectibles or artworks or other non-monetary uses cases.
What does the future hold for NFTs?
NFTs are a powerful tool for artists, brands, and creators to create their economies. The ability for fans to buy, sell and trade assets creates a marketplace for creators to develop communities around their art or product. NFTs have many use cases across gaming, art, education, and even fundraising.
However, as the market is still relatively new, it’s hard to produce accurate predictions for the future of NFTs. Yet, digital collectibles have already proven to be a viable investment and are changing the art space for the better. Being criticized as an over-hyped fad for the crypto-rich, NFTs disrupt the traditional art market and give new opportunities to artists to monetize and authenticate their work. Therefore, even if they lose the foothold, non-fungible tokens have already made a dent in the crypto market.