What are NFTs?

Non-Fungible Tokens are unexchangeable tokens that represent ownership of a digital asset on a blockchain network. These tokens can represent the digital version of any form of asset- ranging from claims over physical assets such as a building or digital commodities like music, essay, art and so on. 


NFTs are powered by blockchain networks and the properties of Blockchain technology such as ownership, authenticity and immutability also apply to these tokens. NFTs certify and validate the ownership of a digital asset in a decentralized network.


Each NFT is encoded with metadata that is specific to that token, making it unique. This helps differentiate the original asset from any duplicates. These tokens are an on-chain representation of off-chain assets making the process of transferring these assets more transparent and efficient using blockchain networks and smart contracts. NFTs are also gaining popularity owing to its ability to remove intermediaries in the process of collecting, owning and selling these assets. NFTs have opened up new ways of interaction between creators, curators and collectors of digital assets.


How do you own NFTs?


NFTs exist on blockchain networks. So, to own NFTs, one must have access to a Blockchain network which also holds a cryptocurrency wallet for transacting with the NFTs. They are created or “minted” from digital objects. These could be digital art such as music, design, videos etc., or it could be a representation of a real-world object such as a house, car, passes to a concert or so on. 



The ownership of the NFT can be tracked using the public digital ledger of the blockchain network that the NFT is embedded in. Each person that was assigned ownership can be traced on the ledger using the unique identification code and metadata coded into that specific token. Smart contracts are employed for management of the transfer of ownership of the NFT.


What distinguishes NFTs from Cryptocurrency?


Though cryptocurrencies and NFTs are built with similar programming, they have their differences. In economic terms, fungible objects are those that can be replaced with identical and similar objects of the same value. Applying the same in the context of cryptocurrencies, 1 ETH will always be equal in value and the same as another 1 ETH. As such, these are fungible tokens. 


However, NFTs differ significantly in this aspect. Each token is given a special and unique identification and a random set of metadata with a value that is specifically attached to the asset that token represents. Owing to this, one NFT cannot be exchanged equivalently for another NFT as they could represent different assets or they could be of two different values.


How do NFTs create value?


Creators of the asset decide the degree of scarcity of the asset. They can either decide to have only the rare original token or a several hundred replicas. The collectors then add value to the NFT market by participating in the buying and selling of these tokens. 


Different communities of collectors drive the market demand for assets made by various creators. This demand-supply movement essentially determines how healthy a particular NFT actually is. 


 There can be a wide range of reasons as to why NFTs are collected- for example, a loyal fan owning the original artwork of an upcoming artist or a photograph with high cultural significance or the opportunity to reap profits by reselling an asset, the value of which is bound to shoot up in the future. 


When the buyer and seller volume increases along with engagement within the community, the market value increases with it. 


Why are NFTs gaining traction?


NFTs have particularly taken the digital content community by storm. Whether  gaming, art, music, videos, memes or the like, its ability to be stored digitally has catalyzed the adoption of NFTs by the digital community. NFTs are a game changer for content creators by helping them earn profits at an unprecedented level with a lot more transparency and returns that they’ve never seen before. As NFTs completely remove the need for any intermediaries, the creator's work is directly bought and the value is entirely exchanged between the two parties to the transaction. 


Creators can continue to earn revenue from their work even after their initial ownership has been transferred. They receive royalties that accrue to them each time the asset is sold to others because the creator’s information is encoded in the assets metadata which is immutable.


In-app purchases in the gaming community have also been elevated by usage of NFTs. In fact, the trading between players of a game has led to an “in-game economy” that is picking up pace. This way there is creation and transfer of items of value between the developers and users of the game through the NFT market that is ultimately beneficial to the whole community.


These tokens can act as collateral to loans and owners can even create “shares” in their NFTs wherein other collectors are allowed to invest or own parts of a token without purchasing the entire token. As both landscapes are steadily growing, their intersections are going to result in exciting developments in the future for various sectors.


Future of NFTs


Though minting NFTs has been criticized for its heavy carbon footprint, most platforms are evolving to find ways to be more climate conscious and energy efficient in the near future. With the security and integrity of blockchain networks and smart contracts, NFTs can render intermediaries redundant and drastically reduce hurdles in business processes. The most exciting and promising aspect of the future NFTs is the formation of new markets and novel forms of investment in several sectors such as real estate, gaming, art and entertainment.

Popular posts from this blog

Introduction to DeFi

  In Brief -Decentralized Finance (De-Fi) is a peer-to-peer financial system that allows users to transact securely through smart contracts and blockchain technology without the presence of a central authority and data-prying intermediaries. -De-Fi applications support financial transactions of all kinds using cryptocurrency and provide an immutable, transparent and borderless infrastructure. -The De-Fi market has seen a growth of 1200 percent since 2020 and has the potential to overshadow traditional finance models in the near future. Overview What is De-Fi? Decentralized Finance (De-Fi) is a blockchain-native financial infrastructure powered by smart contracts. The decentralized financial markets run on public blockchains such as Ethereum and closely replicate services offered in traditional finance. Owing to the use of smart contracts, De-Fi services are transparent, immutable and interoperable. It uses a distributed ledger technology that allows all users on the network to acce...
Read more

Understanding Web3

Web3 (also known as Web 3.0 or web3) is steadily rising to fame and has the world eager to tap into its vast potential. However, for a person with a highly “consumer-based” experience of the internet and not a “developer-based” experience, Web3 and Blockchain Technology can sound perplexing and challenging to navigate. In this article, we will demystify some of the fundamental concepts of Web3 and the infrastructure that it is built on i.e., Blockchain Technology.  First, A Brief History of the Internet The internet, just like any living being, has gone through its fair share of evolution over the last few decades. It began as a “browse-only” space (Web 1.0), where an array of sites was available for public viewing with minimal to no interactivity. This archaic form of the internet limited the user experience to only looking at codified content without editing or interacting. Then came Web 2.0 (estimated to have originated sometime around 2004), which terraformed the internet, maki...
Read more

Code is Law: Exploring the Intersection of Code and Traditional Law

Introduction The concept of "code is law" has gained prominence in the realm of blockchain technology disputes and offenses, necessitating a reexamination of the applicability and limitations of traditional law in the blockchain sphere. This article delves into the history, relevance, and implications of 'code is law' on traditional legal systems, considering the increasing litigation surrounding blockchain technology. What is code is law? The notion of "code is law" asserts that the values and behaviors embedded in code govern interactions in cyberspace. Code, being binary, either implements or negates certain values, enabling or disabling specific behaviors. This perspective highlights the need for collective involvement in determining code values, ensuring a broader influence on its development. Is code and law at odds with each other? Code and law have fundamental structural differences that create tensions between them. Code operates in a binary and una...
Read more