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What are NFTs?
NFT stands for Non-Fungible Tokens which are essentially cryptographic assets on blockchain. Each one has a unique identification code and individual metadata to classify each NFT from another. Because of their unique identifications, NFTs cannot be traded or exchanged as equals like fungible tokens like cryptocurrencies can.
Whilst they cannot be traded with each other at equivalency, NFTs can be used to symbolize real-world objects such as artwork and real-estate. Such ‘tokenizing’ allows them to become tangible assets which can be bought, sold, and exchanged whilst minimizing the likelihood of fraudulent activity. Additionally, they can be used to represent less tangible entities such as people’s identities and property rights. They are thus digital representations of physical or non-physical assets.
Given they are based on blockchains and thus decentralized finance, NFTs remove intermediate (financial) bodies in transactions. For example, artists can connect directly with their audiences. NFTs therefore remove intermediaries, simplify transactions, and create new markets.
Examples of NFTs and Recent NFT Investments
Most NFTs are collectibles, such as digital artworks and sports cards. The NBA Top Shot is currently a very popular space where users can collect non-fungible tokenized NBA moments in a digital card form. These cards are known to have been sold for millions of dollars.
Furthermore, Twitter CEO, Jack Dorsey, recently tweeted a link to an NFT representing a version of the first tweet ever written - ‘just setting up my twttr.’ This has been bid up to $2.5 million.
Understanding NFTs
NFTs are unlike other cryptos in that they are unique and irreplicable. No NFT is therefore equal to another. Such digital representations are, in this way, like digital passports in that each NFT represents a unique, non-transferable identity which cannot be equally exchanged for another.
It is also possible to combine two NFTs to ‘breed’ a third, unique NFT, thus meaning they are extensible. The most popular example of this are cryptokitties. These are digital representations of cats, each one uniquely classified on Ethereum’s blockchain. The cryptokitties reproduce among themselves to produce offspring – separate cryptokitties with their own identifications and valuations. After just a few weeks of their launch, more than $20 million had been spent by users purchasing, feeding, and nurturing these cryptokitties.
Benefits of NFT and Reasons to Promote NFT Investment Strategies
Market Efficiency: NFT’s blockchain feature is one that streamlines processes and removes intermediaries by removing the needs for agents.
Great for Identity Management: NFTs have the potential to replace physical passports that need to be shown at entry and exist points due to their unique classification attributes. This would thereby streamline entry and exist processes for jurisdictions.
Democratizes Investing: NFTs can fractionalize physical assets by enabling one digital real estate have multiple owners, for example. Such engagements could hugely increase its value and returns.
Creation of New Markets and Investment Opportunities: The best example of this is real estate. Physical real estate trading is a complicated and bureaucratic affair but with NFTs, the process can be simplified by including relevant metadata into individual NFTs.
