On March 11, 2021, a digital photo collage by the artist Beeple sold for $69.3 million at Christie’s, making it the most valuable NFT ever minted. But this sale wasn’t an anomaly. It was like a canary in a coal mine, signalling to the world that NFTs had finally entered the mainstream.
Since March, NFT sales have gone off the charts, rising from $55.5 million at the beginning of the year to $5.6 billion by November. That’s an incredible run for a category of assets that most people didn’t even know existed a year ago. And while more people seem to be jumping on the bandwagon every day, there are still a lot of questions and confusion surrounding NFTs.
What exactly are NFTs?
To answer those questions, we must first define NFTs more precisely. NFTs aren’t just JPEGs, you see. They can be photographs, music, movies, or text, among other things. You can make an NFT out of anything that can be digitized. While artwork has gotten a lot of attention, it’s merely the top of the iceberg when it comes to NFTs.
So, what distinguishes NFTs from other types of digital files?
The term “non-fungible token” refers to a token that is not fungible. However, if you’re going to wrap your head around this, you should definitely start with the concept of fungibility.
What’s the Difference Between Fungibility and Non-Fungibility, and Why Does It Matter?
If we both have £10, we could trade those notes and the value we’re holding would remain the same. That is what it means to say that something is fungible. The majority of cryptocurrencies, including Bitcoin, operate in the same way. Each bitcoin is worth the same amount of money. It makes no difference whether you have the first one mined or the most current one.
It’s non-fungible if something is one-of-a-kind and can’t be replaced evenly by something else. Consider trade cards, motorcycles, or real estate. There is just one of each of those items in existence. You might be able to find one that’s comparable, but exchanging an identical copy of a non-fungible item is almost impossible.
Physical things are non-fungible by definition. Digital items, on the other hand, haven’t always been. Text, photos, and video can all be copied and pasted. As a result, NFTs are digital assets that are maintained on a blockchain alongside a record of ownership and other relevant information. Because they can only be owned by one individual at a time, they are one-of-a-kind. It’s similar to having an autographed or numbered print of a photograph or painting. There will be just one print with that number or the artist’s signature in that exact spot. Similarly, anyone who purchases an NFT gets confirmation that it is the genuine article. It is possible for others to reproduce it, but only one individual can truly own it.
What adds value to NFTs?
Like most others, the value of an NFT depends on supply and demand. The more people want something, the higher the price. However, simply creating artwork and selling it on the NFT marketplace (Droplt, OpenSea, etc.) will probably not generate much demand. Therefore, those interested in the potential of these digital assets need to think long and seriously about how to get the most out of NFTs. The future of NFTs isn’t just about digital art collections. It’s just the tip of the iceberg. The true value of NFTs is to increase their usefulness.
Making NFTs Work
Since NFTs can be any type of digital data, utility can be added to them in a million ways. We are already starting to see this happen through playtoearn games and by offering special benefits to NFT owners.
NFTs and Gaming’s Future
Axie Infinity, an NFT game, has recently risen in popularity, boosting the value of its developer business from nothing to $3 billion in just three years. Players can use NFTs to buy unique characters and other digital items in the game. They can then play the game with those NFTs, earning more valuable ones in the process.
Obviously, an NFT that allows you to play a game and earn more NFTs has more utility than a simple JPEG that adds you to the blockchain as its owner. This is especially true when you consider that the global gaming sector was estimated to be worth almost $175 billion in 2020. In other words, billions of dollars have already been spent on video games. Adding NFTs to gaming will just provide them with a new way to do what they’re currently doing, but with even more rewards.
Beyond Gaming and Into the Metaverse
Making NFTs interoperable with numerous games, platforms, and applications is another method to increase their utility. Consider buying an NFT avatar that you can use in a variety of video games. Consider the metaverse’s possibilities.
Someone may be able to use the same NFT avatars and commodities from their favorite video game in a digital home or office area in the future. With each additional platform that is compatible with an NFT, its value and utility will increase.
The Benefits of Owning an NFT
However, this isn’t the sole application for NFTs. Some businesses use them as membership and identity badges. For example, a company may offer branded, one-of-a-kind NFTs with distinct benefits for owners. They may receive a discount on particular items or gain access to a members-only portal. Businesses might even form alliances, allowing NFT holders from one company to benefit from the benefits of the other. The alternatives are unlimited in this situation. And this is yet another way in which NFTs could be more useful and valuable.
NFTs in the Future
What we’ve seen so far only scratches the surface of what NFTs can do. It’s possible to have NFTs do anything thanks to smart contracts, another blockchain-based invention. To put it another way, NFTs aren’t just JPEGs. They’re so much more than that. They’re a method for customers and fans to get closer to the companies and content creators they care about. They also enable those brands and customers to create larger, more focused platforms.
We’ll see additional applications and usage as more entrepreneurs and inventors investigate NFTs and their possibilities. And as the utility of NFTs grows, they will unavoidably gain in value.