What are NFTs and what you should know about them

One of the most important technological trends in the field of blockchain development in 2021 is the so-called NFT tokens (Non-Fungible Token). NFT is a digital token created on a blockchain that is completely unique, it cannot be replaced by anything.

If you missed the previous part of our article series, you can read it by clicking HERE.

NFTs are a relatively new type of digital assets, designed to represent ownership of something. They can be anything that is completely unique and rare, whether it’s a physical asset, a digital work of art, a share, or a property.

Fungibility

The term “Non-Fungible” refers to the fact that a token is completely unique, with properties that cannot be easily changed for another token with similar but different properties. Take, for example, cash, which is interchangeable in its properties. A certain amount is equal to the same amount owned by another person regardless of the denomination, so it is interchangeable and this gives its usability. 

More simple: A hundred dollar note  represents the same value as two 50 dollar notes.

In contrast, as an example of non-fungibility, if we rent a car, it is not acceptable to take another car back, even if the brand and a model are the same as the original car. Cars are non-fungible in terms of ownership, while the petrol that runs the car is fungible.

An asset such as a diamond, real estate, or a basketcard is not interchangeable because each has unique properties that determine their value. Each diamond has a different cut, clarity, size, and color. Real estates also have completely unique, innumerable features in terms of location, size, equipment and condition.

We take for granted the interchangeability of assets and objects in physical space, but the difference is not clear in the case of digital assets. Take for example, an email or an image, they are easy to copy online, their uniqueness is given by their creator. A non-fungible token uses a blockchain to identify its authenticity, so you can easily distinguish between the original and the copy. The blockchain provides an opportunity for collectors to create digital collections where each item can be traced back to its original creator.

This is a proof of ownership of the asset to the buyer. This proof also protects the value of the asset in the future transactions.

Importance of NFTs in the physical world

NFTs can represent any type of physical assets as a kind of “digital twin,” allowing them to circulate in digital markets. Real ownership is a key element of the NFT, playing a key role in bringing the digital world closer to the physical world.

Past and present of the NFT market

The wider blockchain technology world has not really paid close attention to the development of the NFT market so far. It was first noticed in 2017 when apps called CryptoKitties and CryptoPunks appeared where collectors were targeted. Initially, their use came to the public almost exclusively through digital products, mainly online games and digital works of art.

Later this year, in 2021, it returned to the public consciousness through the OpenSea and Rarible platforms, where we can purchase digital works using blockchain technology. Artists can sell their works in digital form in these marketplaces. Here, demand was several times higher than previous levels. Some works have been sold for millions of dollars. This has also been noticed by the global press, with news sites such as the New York Times, Forbes, The Wall Street Journal and BBC News reporting on it.

The New York Times – Why Did Someone Pay $560,000 for a Picture of My Column?

The Wall Street Journal – The NFT Origin Story, Starring Digital Cats

Forbes – What You Need To Know About Non-Fungible Tokens (NFTs)

BBC News – What are NFTs and why are some worth millions?

Decentralized domain name services have also helped spread NFTs. Through Unstoppable Domain and Ethereum Name Service (ENS), people learn to use NFTs without necessarily noticing it. These domain providers allow users of Ethereum-based cryptographic wallets to change long, hard-to-remember addresses into easy-to-read names. These can later be linked to websites to help with the user experience.

Collectible digital sports cards are also a big slice of the current market, with a number of football teams and NBA teams included in the repertoire.

What does the NFT customer get?

One of the reasons that NFTs have become a topical issue in recent months, in addition to the staggering initial selling prices we have seen, is that many NFTs have continued to increase the value of secondary sales, so there are those who buy for investment and trading purposes. 

However, it is important to note that the user purchases the token, not the digital or physical product associated with the token, which is located outside the blockchain. The cryptographic relationship between the token and the asset does not automatically result in the transfer of rights or obligations related to the asset, this is done under a smart contract between the buyer and the seller. The purchase of a token may, like a contract, involve related rights, so it may even involve the transfer of ownership of the digital file of the digital asset, but this depends entirely on the terms of sale of the particular NFT. The range of related rights that can be linked to the NFT is practically unlimited.

There may be misconceptions among customers that by purchasing the NFT associated with the underlying digital / physical assets, they are buying not only the token but also the product itself. In most cases, a cryptographic “hash” (identifier) ​​will be associated with the token on the blockchain; the products themselves do not exist on the blockchain. 

What is the size of the NFT market?

Since its launch in 2018, the then $ 41 million industry has almost doubled every year. The market segment, which is already $ 338 million by 2020, could reach $ 710 million by 2021, according to some research. Its rapid development and huge interest is helping the expansion of online marketplaces. Weekly projects open up new directions for development, attracting more and more investors and users. New projects appear weekly, which attracts more and more investors and users.

Annual growth of the NFT market in million dollars.

Possibilities of NFTs in the future

Non-fungible tokens are also meant to revolutionize the market for tokenization of certificates, attestations, diplomas, and digital IDs. With their help, we can tokenize almost anything that is unique, digitally representative, identifiable, transferable, but not copyable

They certainly have a bright future, we could use them in votes, in elections to eliminate fraud and to transform democracy. Through improved loyalty programs, they can help organizations get to know their customers better. And customers can use it for a better warranty and licensing experience, directly managing the exchange of their personal information for products and services. They could also be of great use for insurance, travel, concert tickets these days. Long and complicated bureaucratic processes can also be easily replaced by a token representing ownership of a property.

It has now become accepted mainly because of its usability in the digital space, but this technological innovation is sure to conquer new areas in the future.

If you have any questions about this topic, write to us at info@inventori.io or contact us on Facebook and we will get back to you shortly!

In our next article, we will write about the digitization platform of Inventori Solutions.

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