Remember the artwork of banana duct-taped to a wall that sold for $ 120,000? It created quite a fuss as such a simple and arbitrary combination cost the buyer huge amounts of money, considering that the banana would rot in a matter of days.
However, 2021 took it a step further. A digital version of banana & tape sells for 80 ETH or $ 171,813. Such digital works are known as NFTs, a hot topic right now as some of NFT sales surpass the $ 550,000 mark.
So let’s understand what NFTs really are and why everyone is talking about them right now.
What is an NFT?
NFT stands for Non-Fungible Token. As the word itself dictates, non-fungible means that an asset is unique and cannot be substituted.
A painting, a house, a copyright or a patent are examples of non-fungible goods, as they have unique attributes that differentiate them from other items in the same class of goods.
Therefore, NFTs are certificates stored on a blockchain that represent different assets that cannot be copied (because their ownership is tracked via blockchain).
NFTS can represent both types of assets, digital (a video or an audio) and physical (a sculpture or a painting).
What benefits does an NFT offer?
The fact that physical assets can be tokenized is the reason why NFTs offer more liquidity.
Let’s say a team entered a competition and won a rare sculpture. Since there is a single physical price for multiple team members, dividing it becomes tricky.
Selling the sculpture and splitting the money is one option, but what if the value of the prize is expected to increase in the near future?
This is where NFT can make things simple. Team members can link a digital certificate (NFT) to the asset and own equal parts of the prize, making their asset more liquid and flexible.
One of the most important features and the reason NFTs are popular is their ability to freely trade on open markets. NFTs can be traded outside of their original environments and transferred from a closed economy to an open market.
Another feature of NFT is that they are programmable. They can be programmed to respond to specific commands and triggers.
One of its examples is CryptoKitties, a blockchain game that allows players to purchase, collect, breed and sell virtual cats.
The game has breeding mechanics encoded directly on its tokens. This means that each cat in the game has a unique appearance and when breeded with another cat, a new and unique kitten will appear that will combine the genes of its parents.
What are the use cases for NFT?
- Virtual housing
Buying a property has always been considered a great investment option, however, what if it’s digital? Yes, you read it right – digital. A first virtual house has been purchased as an NFT for the sum of more than $ 500,000.
Virtual reality (VR), a technology initially popular in the video game industry, has seen advancements in many different sectors and real estate is one of them.
Many believe that in the near future, people will live in a world powered by VR and AR consisting of digital buildings, vehicles and pets.
In fact, there is already a place called Genesis City, a virtual city powered by Ethereum where people can buy their digital land and build infrastructure. In such situations, NFTs are a great way to claim ownership of your virtual properties.
- Ownership verification and beyond
Not only can you easily verify ownership of assets with NFT, but you can also get a complete history of the asset, such as provenance, previous owners, etc.
Many luxury brands are taking this opportunity to vary the authenticity of high-priced assets. For example, LVHM, a luxury good company, is planning to introduce blockchain tracking authenticity technology, where buyers can easily access the complete history of a luxury good.
- Identity protection
Identity theft is a big problem and can lead to devastating results like emptying your bank account, damaging your credit, or even getting you wrongfully arrested.
NFTs are a perfect solution to prevent these types of problems. It can digitize all the physical documents like IDs, medical reports, certificates, etc. and free a person from the burden of carrying them around all the time.
Such a use case is still in an early stage, however, considering the speed of advancement of NFT technologies, there is a high probability that soon we might see it widely used.
NFTs may not be that popular yet, but the industry is certainly on the rise. With all the benefits and advantages that NFT technology offers, it is not surprising that its range of applications has progressed from simple gaming concepts to more advanced use cases such as digital identification.
As Non-Fungible Tokens gain more promotion from famous people like Elon Musk, the technology is likely to penetrate more industries and be used more widely.
So let’s wait and see what new applications can developers and the cryptocurrency community find for NFTs.