NFT’s have gained a massive amount of traction in the last few years and are one of the most popular topics in crypto this year, along with de-fi.
Some new concepts for the use of Non‑Fungible Tokens (NFTs) are popping up and being created all the time — they’re even being touted as the future of the gaming industry, the art industry, and even in some cases the real estate sector.
People are asking; what are NFT’s? How do they work? What are they used for and naturally how can I capitalise on them?
So lets get stuck in to the ultimate unbiased guide to NFT’s.
Fungibility can sound complicated, but it’s actually a very easy concept to understand that relates to things we own and use every single day. Don’t think of it in terms of just for crypto, it applies to real-world assets as well as digital ones.
The cash in your wallet or the Bitcoin in your crypto wallet is the easiest example of a fungible asset. Both are easily replaced by something that is (for all intents and purposes) identical.
If Bob lends Kate $10, he wouldn’t need to receive exactly the same banknote back, because all $10 notes are equally as valuable, that’s what makes it fungible.
Now, Non-Fungible is the exact opposite, you cannot swap a house for a house simply because it’s a house, right? Each one is unique and will have a different value.
So now when we talk about Non fungible tokens, we are talking about a digital representation of something with a unique value. Therefore, a fungible token is a digital representation of something of the same value and mutually interchangeable i.e. Bitcoin; as you wouldn’t need the exact same bitcoin back that you lent to your friend Kate.
The 3 Main Characteristics of NFT’s
They are all 100% unique.
Meaning that you cannot fraudulently produce them or copy them. Deep inside a non-fungible token, the metadata describes what makes this asset different from all the rest. This is a permanent, unalterable record that describes what this NFT represents — almost like the certificate of authenticity that you’d get with a rare painting or a deed for a house.
They all have rarity.
Scarcity is an important ingredient in the recipe that makes NFTs so attractive. While developers have the freedom to generate an infinite supply of certain assets like copies of digital art, they also have the power to limit the number of rare, desirable items in existence, unlike fiat currency, which is printed in the billions every single day, devaluing the money in your wallet.
They are indivisible.
For the most part, NFTs cannot be split into smaller denominations — they can only be bought, sold and held whole. Remember the rules of non-fungibility; you can’t purchase 10% of an art piece, or collect 50% of a baseball card.
So why are NFTs so exciting and what’s all the craze about?
Well, you should be aware that non-fungible digital assets have been around for years now. Think about a given username of a social media or email address. Some people would kill for a specific username on Twitter for example, however with this example, it can be taken away from you at any second if Twitter wants to shut down your account.
With NFT’s they prove ownership, they are completely transferable and they prove authenticity.
So, no one can take it away from you, you could sell them and they are also used to prove that something is legitimate.
Think of the power of even just the first one. It doesn’t matter where in the world you are, the ownership of a digital asset can never be taken away from you, proving it’s authenticity and removing the chance of any kind of fraud, which as we know, always has been a massive issue in society and with the advent of technology it has simply gotten easier.
So where can we use them?
Lets have a look at some of the most exciting NFT projects that get me up and about.
Right now, its still very early days in the NFT space however, it’s showing a clear working mechanism capable of being used in many industries from gaming and sports to art and technology.
Many major sporting clubs and leagues are turning to NFT’s for a new source of income, selling digital art of all things relating to the club and sport, which as we know, is well needed in this time.
Louis Vuitton is creating NFT’s to be sold with all their accessories to undoubtably prove the authenticity of a product or not. As we know the fashion industry has among the highest dollar value of fraud and fake products out of all industries, valued at approximately $27 billion globally, per year.
Nike is creating digital shoes as a collectable and as we know, Nike shoe collectors can be quite the money making market.
How do you capitalise on them?
Well, right now when looking at the current grand scheme of the possibilities and theoretical of NFT’s we are very much at the beginning and the opportunities now are limited, and I say this modestly and conservatively.
The way this would work is through purchasing in the hope that the demand will cause an increase in the value much like a collectable item or antique however, be warned, you can get seriously burned doing this for 10’s or 100’s of thousands of dollars for making poor purchases or getting greedy as we saw with a crypto game called “Hot Potato”.
While NFTs are digital assets, there have been interesting moves to tie them to physical, real-world objects. Unisocks, for example, allows you to purchase a $SOCKS token (fungible) that you can then redeem for a pair of real socks and an NFT representing ownership of that pair of socks. Saint Fame has a similar setup with its $FAME and $ICK tokens, which you can redeem for a physical shirt and mask, respectively. And, 12 real-world prints of the CryptoPunks characters were made and put in a Zurich art gallery, with sealed envelopes on the back containing a paper wallet. Similarly, these can become collectors’ items
With this said, NFT’s have shown a working function, so speaking optimistically its only a matter of time before physical goods are authenticated with NFT’s, how long that time is no one knows, maybe 1 year, maybe 10 or maybe 100. For the secure businessman, another way is to make your own NFT’s much like we see through Hive blockchain project where you can create your own NFT’s to represent something for a small fee.
Selling items with NFT’s can lead to higher demand for products, which ultimately leads to a higher price on the simple economic principle of supply vs demand.
So lets take a step back and look at it with a completely unbiased view.
- They could unlock new revenue streams in gaming, sports, the arts, and technology.
- NFTs could introduce millions of people to cryptocurrencies for the very first time.
- They can transform our attitudes toward ownership — and make it possible to own a real-world asset that’s thousands of miles away.
- Building decentralised apps for non‑fungible tokens can be tricky and time consuming.
- Much more simplification is needed so NFTs are easy to use for people who know nothing about blockchain.
- NFT games can have a ”hot potato” effect. Players buy an asset in the hope of
selling it on for a profit, but if the market collapses, they can make a nasty loss.
So keep an eye on this NFT space, it will be great so see how it progress’s over the next few years as it was with Bitcoin about 10 years ago where it had achieved nothing and had all the potential. Look at it now.
Author: Michael Fitzgerald