By now we’ve all heard, in some way or another, the word ‘NFT’. Some may also know that it is an acronym for ‘non-fungible-token’, although it’s still a pretty mysterious definition.
Let’s try to break it down.
Imagine you have a one-pound coin and I ask you to swap it for my one-pound coin. Not a big deal, right? They have the exact same value and the same characteristics. This is what fungible means.
Now imagine you have an original Picasso, and I ask you to swap it for my original Warhol. Not so simple. You would need to know their value, their characteristics, and so on. This is because the Picasso and the Warhol have unique features; they are one-of-a-kind objects. This is what non-fungible means.
NFTs are not interchangeable, but they are also not physical objects. So where are they? How can they have unique characteristics if they are not ‘real’? NFTs are stored on the blockchain. Imagine the blockchain as a digital collection of data that is shared across a wide network of computers. Each NFT has a ‘digital signature’, which makes it unique.
Some numbers are useful to have a sense of how this new technology is growing:
- NFTs have been around since 2014, but the NFT market has been exponentially in the last couple of years, with a growth rate of over 21.000% in 2021
- In 2020, the NFT market was valued at $100 million. By mid-2022 this had increased by 30x to $3 billion
So why is this? Where can NFTs be used?
Because NFTs are unique, they can represent ownership of digital artworks. This opens up the doors to a new way of trading art: the value of owning an NFT from a priceless collection far exceeds that of owning a JPEG file.
Think of artist Mike Winkelmann (aka Beeple), who sold his piece Everydays: The First 5000 Days — which sold for $69 million at Christie’s in 2021. Considering that Monet’s Nymphèas sold for 15 million less in 2014.
It seems that NFTs are opening a new realm of possibilities for artists, who, thanks to this new technology, can earn a percentage of the sale every time their work is traded.
NFT Gaming (often called play-to-earn games, or P2E) opens new possibilities for the gaming industry. They allow exchange across different games, making the game world very similar to reality: once you have an item, you can use it in a variety of different environments. For example. When you buy an armour upgrade in a traditional game, the only benefit is an improved gameplay experience. With NFT gaming, the same armour can be used for a variety of benefits across different games, and can also be exchanged for money or other assets.
If on one hand, some argue that the possibility of earning money is spoiling playing for fun, on the other hand, this new technology is opening up whole new realms of possibilities.
Since non-fungible tokens have unique characteristics that are highly desired in the luxury goods business and may be used to ensure authenticity, these applications are best suited for NFTs. A tangible token that represents the digital asset being traded is offered by several extremely popular NFTs.
Gucci, Burberry, and Louis Vitton are some of the luxury brands that have embraced NFTs. Beyond the ‘seal of authenticity’ that NFTs provide, these brands are also exploring different possibilities; the NFT may be the ticket to a very exclusive event/party or may guarantee first dibs on a new collection or limited edition item.
Sports NFTs allow fans to trade assets such as digital trading cards, virtual memorabilia, and seat licences. They can also be linked to specific utility features, such as access to exclusive items or areas of the stadium.
Fans can also capture digital memories from a specific event: a video of their favourite player scoring, or other moments during the game worth owning a memory of.
The music industry uses NFTs as a currency for concert tickets and merchandise, as well as songs, entire albums, and music videos. Similar to uploading your tracks on Spotify or selling an album on Bandcamp, NFTs are on their way to becoming a new method to release music.
And it’s not just the music itself, but everything around it can become connected to this new technology: Death Row Records, acquired by Snoop Dob, will become the first NFT label. And if we get to ‘out of the box’ approaches, Mr Baby Got Back has created a series of Bit Butts NFTs to raise money for colon cancer awareness.
NFTs can also become an ideal tool for buying and selling real estate properties, making the process potentially more efficient. The advantages of blockchain and NFT may give buyers and sellers the confidence they want when transferring assets.
Buyers might be able to borrow money using their real estate NFT on DeFi or other conventional financing methods on the blockchain. NFTs might therefore make it easier for you to get loans towards your home.
NFTs can be used to create virtual environments, marketplaces and worlds: computer-simulated places where users can relate to each other like in the real world.
An NFT might, for instance, stand in for a virtual piece of real estate in a virtual world. By purchasing an NFT, you would become the owner of that asset and have the option to sell or rent it to other users. You can make your own avatar, set up your shop, play games, and collect artworks. For example, The Sandbox allows users to buy virtual lands, and make and sell objects.