Are NFTs Worth It? Getting Started with NFTs
Non-fungible tokens are one-of-a-kind digital items that form a fundamental building block of the Web 3.0 future. Learn about them and their applications here.
- The capabilities of blockchain technology have numerous applications that can improve the way we currently operate on the internet including the ability to create trustless, digital scarcity.
- One such application is non-fungible token (NFT) technology, which allows for the creation of one-of-a-kind digital items that can be securely transferred on blockchain networks and stored in digital wallets.
- The use cases for NFTs are wide ranging and they could one day be integrated into numerous aspects of society including shipping and logistics, the tracking personal health and financial data, and the expanding world of gaming.
- NFTs are a fundamental building block in the Web 3.0 future that is currently being constructed, so understanding the basics is important to help capitalize on this growing trend while it's still in the early stages of development.
What is a non-fungible token?
Non-fungible tokens are a form of cryptocurrency token that represent a unique digital asset or the tokenized form of a physical asset. Examples of items that could be turned into an NFT include a one-of-a-kind piece of digital art created by an in-demand artist or the deed to a house whose details have been recorded on a blockchain.
In a simple sense, NFTs are an evolution of the human desire to collect things like rare basketball cards or limited edition music albums but with a modern twist that has arisen out of the digital revolution.
Fungibility refers to the ability to interchange one asset with another asset of the same type and is an ideal trait for an asset that is designed to be a medium of exchange. One Bitcoin can always be exchanged with another Bitcoin, just like one five-dollar bill is interchangeable with any other legitimate five-dollar bill.
Non-fungible tokens, on the other hand, are specifically designed to be unique in their own right and cannot be faked or copied, thanks to the security that blockchain technology provides. Due to these properties, NFTs are ideal candidates to function as proof of ownership and for authentication in the growing Metaverse.
How do NFTs work?
Out of the various methods available to create or issue an NFT, the most popular is using the ERC-721 token standard for the issuance and trading of non-fungible assets on the Ethereum network.
Once minted, NFTs essentially act like a digital certificate of authenticity and can be used to prove ownership of digital data by demonstrating control of the digital wallet where the NFT is held.
Prior to the creation of NFT technology on a blockchain, it was not possible to authenticate a digital asset due to the ability to copy and widely distribute digital files. With NFTs functioning as digital certificates of authenticity, it is now possible to easily verify legitimacy, NFT value, and other important data such as the history of prior owners and the original creator.
NFTs can now come in various forms, such as an image, a movie, a tweet, a song, or digital representations of physical objects ranging from a collectible baseball card to the deed for a piece of real estate.
What can NFTs be used for?
There are a variety of use cases for NFTs once they have been encoded into a smart contract and minted. Across the expanding cryptocurrency ecosystem, NFTs have been integrated into decentralized applications as a way to issue unique digital items and crypto-collectibles. Applications include the creation of collectible items, art, investment products, music, and gaming tokens, to name a few.
The Gaming sector is particularly fitting for NFT technology as the ability to tokenize gaming assets is a long sought-after capability and has the potential to be a billion-dollar industry.
Virtual worlds and 3D landscapes also provide ample opportunities for the integration of non-fungible tokens as the real world gets digitally copied into the Metaverse and virtual real estate grows in popularity.
Low liquidity markets, such as fine art, real estate, and rare collectible items will benefit from the integration of NFT technology as it will open them up to an international stage of buyers and sellers where transactions can be performed in a trustless environment.
And finally, the realm of personal information and digital identities is also set for a major evolution thanks to NFTs, as storing identification and ownership data on secure blockchain networks will bring a new level of privacy and data integrity to the global economy.
How do NFTs gain value?
If you’re wondering ‘what makes an NFT valuable?,’ the answer is simple; the real value in an NFT comes from what the token represents. NFTs can be created for anything that is one-of-a-kind and requires proof of ownership, but not all things will give NFTs value.
Apart from their uniqueness, some of the other traits that NFTs carry include being indivisible, tradable, fraud-proof, scarce and programmable. Smart contract technology enables all sorts of interesting possibilities, including the ability for creators to specify that royalties be paid to them whenever an NFT is resold, offering a way for artists and musicians to make a living as an independent entity.
In the end, when all things are considered, an NFT’s value is really based on what someone is willing to pay for it. Keeping this in mind, and as will all things in crypto, it is up to each individual to do their due diligence and research any NFT they are interested in acquiring before making a purchase because once the NFT lands in your wallet, you own it and there are no charge-backs.
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