Since NFT technology first launched in 2014, there has been an explosion of use cases throughout the crypto community. But what exactly is an NFT and why are people so excited by them?
To keep it simple, a Non-Fungible Token (NFT) is a token that can represent ownership of a unique, digital item. Whether it be art or land in the metaverse, NFTs provide a way to claim ownership of a piece of digital data or it can be used as a certificate of authenticity for both digital and real-world items.
A good way to think about a fungible item vs. a non-fungible item is with the US dollar. One US dollar can be traded for another and the value remains the same, therefore the US dollar is a fungible asset. The value is different for each individual NFT, and each NFT is unique on its own. So while NFTs are tradeable on secondary marketplaces, their value is subjective to the supply and demand of the collection or the rarity of the art piece, hence the name non-fungible token. For example, you can trade one unique NFT for another, or sell an NFT to buy another, but each NFT remains unique.
How NFTs work
NFTs function as a unique piece of data on the blockchain. What that means is when an NFT is purchased, the transaction is secured through a platform’s network and can be tracked through the public digital ledger which is the blockchain.
In other words, when an NFT is sold, it is a peer-to-peer transaction between users because of the use of blockchain technology. Each sale of an NFT transfers from the wallet of the seller to the wallet of the buyer. As a result, it cuts out an intermediary and provides a unique, digital signature to be able to prove ownership. Each NFT can only have one owner at a time and most cannot be divided into smaller pieces.
Currently the NFT world is exploding with growth, but the most prominent form of NFTs is digital artwork. There are individual artists that release NFTs like Beeple, and then there are also NFT collections like the Bored Ape Yacht Club.
NFTs have a huge impact on artists and content creators because it allows them to sell and profit from their work without the need for a third party. NFTs can also enable automatic royalties for the artist, so they can continue to earn on their art from secondary market sales. Creators can sell their art directly to others while protecting the copyright to their work, allowing them to earn royalties on it each time it changes hands.
Another popular use for NFTs is in the gaming world. One specific example is The Sandbox. In the Sandbox metaverse, players can purchase NFTs that represent characters, animals, objects, and more within the game, creating a personalized experience for each player.
Future of NFTs
As NFTs become more popular, many new use cases present themselves. Since an NFT is essentially a deed, they can be used to make larger purchases like a car or a house. Companies like AMC are currently accepting cryptocurrency as forms of payment, so NFT tickets for movies and events could be accepted in the near future. They can also be used as a memento capturing a cultural moment. Think everyone going to an NBA final game receiving an NFT in place of a physical ticket stub. We’re still in the early days of the NFT boom and the space will continue to expand as more creative thinkers and artists join the movement.