The cryptocurrency landscape is one that is constantly changing. Those who are immersed in cryptocurrency would know that one of the hottest topics right now is NFT. But there are many who aren’t familiar with or informed about NFT and its characteristics. This article hopefully can help clear up some of the mysteries surrounding NFT.
So, what is NFT? Why is it important and how is it going to shape our future?
NFT stands for Non-Fungible Token. Non-fungible means that it is something unique and cannot be replaced by something else. Therefore, an NFT is a token that allows your digital assets to become one of a kind by giving it a unique digital signature which defines the ownership of your assets and can be bought or sold using real money, cryptocurrency or even other NFTs. For example, the painting of the famous ‘Mona Lisa’ is non-fungible as it cannot be mass-produced and even if it can be copied it will not be authentic.
On the other hand, fungible assets are interchangeable or can be divided into smaller units to form something that is the same value. Let’s use RM 100 bill as an example. You can trade your single RM 100 bills into either 2 RM 50 bills or 5 RM 20 bills. They will remain the same value.
Each NFT contains distinguishable information such as who owns the digital asset and who sold it. Making them distinct and easily verifiable. This certificate is almost impossible to forge due to the nature of blockchain technology securing the digital assets’ originality.
Now you may ask, how does NFT work?
An NFT basically creates a blockchain based digital certificate for your digital collectibles such as games, music, art, and cards. Having this certificate means that your digital collectables have a unique identity. NFTs exist largely on the Ethereum blockchain which is also a distributed public ledger that records all the transactions.
However, NFTs have some distinct differences from cryptocurrency. For example, Bitcoin and Ethereum are fungible tokens. When you trade one for the other, you will get back something that is equal in value. On the other hand, an NFT is a unique token. If you try to trade it, you may end up with something that is completely different. Meaning there is no fixed value. For example, you can trade your highly valuable first edition Charizard Pokemon card for something like NBA legend Michael Jordan’s trading card.
So now you may think, why are NFTs such a big deal? Well, the reason for that comes down to whether are you a buyer or an artist.
If you are an artist, then you may want to consider converting your artwork into an NFT because it allows you a way to sell your artwork rather than going through traditional means such as a sales gallery. Also to note is that NFTs have a feature that can be built in to facilitate a percentage payment to the artist of the artwork every time the NFT is sold or changes hands, similar to how royalty works but fully automated.
If you are a buyer/ collector, one of the main benefits is that it allows you to show your support to the artist. You will also gain basic usage rights such as posting the image online as well as bragging rights to owning the artwork with the support of a blockchain entry to prove your claim. Speaking of blockchain, buyers of NFT do not need to worry that their digital assets are fake copies as it contains the digital certificate to prove their authenticity. It is like buying an autographed print.
From the collector’s perspective, these NFTs can also be viewed as speculative assets which may increase in value similar to physical collectibles such as art pieces and sneakers.
With the ever-growing popularity of NFT, we may see that NFT will play a more significant part in the digital economy of the future. We may also gain a deeper understanding of how we perceive value in different items moving forward. Only time will tell.