What are Non-Fungible Tokens?

by Farheen Shaikh  |  April 19, 2021

Remember, in the old days; we had a pack of Pokémon cards? If you have come across it, you would know that each of those cards in the collection was unique and non-replaceable. NFTs or non-fungible tokens are on the same line. 

You can replace a TV unit with another one. You can even trade a BTC for another. Contrary, the term “non-fungible” refers to something unique and that you cannot replace. These are a part of the Ethereum blockchain (a blockchain exclusive to NFTs) and some other supported blockchains. 

The gist is that NFTs can refer to anything uniquely available digitally (there have been attempts to attach NFTs with real-life objects). But the current traction is more towards digital art and other such rarities.   

It is imperative for people Googling words like NFT token list or NFT token price to understand NFT refers to non-fungible ‘token’ token or non-fungible ‘token’ token price. It is incorrect, and instead, search for “NFT” or “NFT price.” Also, if you are searching for NFT crypto, it is not a cryptocurrency.

A 2021 Guide to Non-Fungible Tokens (NFTs)

Blockchain has a unique knack for being in the headlines. Every time there is something that breaks out, people across the world go, “Wow! What’s next?”

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We are all used to investing in mutual funds or ELSS, which entails part ownership of a company’s stock. It has become so common that a new fund comes up every other day, and hardly anyone bats an eyelid.

But we suggest you take a step back to read what’s coming next. 

Twitter founder Jack Dorsey sold his very first tweet as an NFT via a platform called Valuables. 

Stunned? There is more to come. 

The furious bidding ended at a user acquiring it at roughly $2.9 million. 

We understand you are already scratching your head. But this is one of the minutest possibilities made possible by NFTs or non-fungible tokens. And that is what this guide is all about. 

Characteristics

Here are the attributes of NFTs – 

  • Each NFT is unique and cannot be replicated by any other NFT. They contain a highly secure information tab for defining their qualities.
  • Each item in the NFT list represents a unique element that you cannot further divide into smaller units. It brings clarity to the purpose of such tokens.
  • Creators can modify the characteristics of each such token.
  • These demand higher value because of their uniqueness.

Importance of NFT

Here is why NFTs are the real deal – 

1. The inculcation of blockchain adds a much-needed layer of security

We have seen the digital representation of physical assets before. So what is NFT doing differently? It adds a layer of blockchain that ups the security aspect and helps curate intelligent contracts. These also offer higher safety and can be the potential future of transactions.

2. They help in identity management

Nike has already started using NFT for identity management. They have a patent for a method of verifying their sneakers’ authenticity via CryptoKicks, an NFT-based system. The idea, if it seeps down to a more generic usage, such as human ID verification, can improve entry and exit processes. It can also make tagging easier and manage it all seamlessly.

3. They redefine the meaning of the term ‘investment.’

The offline world has a very narrow meaning of the word ‘investment’. Imagine the real estate that you see in front of you as a digital one, and the equations become very different. You can now fractionalize it, distribute each segment as a token. The possibilities are endless.

It often gets difficult for individuals to own artworks and other invaluable items. Instead, if we create a digital equivalent of the asset, there is no need for a single owner to own the entire piece. We can instead assign parts of it to multiple owners.

4. Possibility of democratising physical assets

A middle-class individual in India can aspire to own a piece of land near a beach in the USA, but he knows it can be difficult to achieve in reality. The inculcation of non-fungible tokens opens a world of possibilities for people who limit their dreams because of a lack of resources.

With NFT’s help, owners can divide their real estate or other assets into tokens. Each such division has a unique set of characteristics and an NFT to represent them. It can help generate higher returns and also democratise physical assets for people across classes and means. 

5. They streamline the investing process

Selling a physical asset like land or building often involves agents and a flurry of complex processes. What NFTs do so well is transfer the entire process online. It removes the need for intermediaries and lets you meet your buyers directly without any barriers. It makes the process holistic and does away with any potential communication gap that usually creeps when multiple parties are involved.  

Popular examples of NFT

Even though the possibilities are endless, here are some probable use cases of NFTs – 

1. Gaming industry

A game called CryptoKitties allowed the users to trade virtual kittens among themselves in NFT form. These can become very popular in games, enabling the exchange of accessories and rare features. 

2. Collectibles

We are not sure how collectible Jack Dorsey’s first tweet is, but there are undoubtedly other highly collectible assets that can benefit from the inculcation of NFTs.

3. Digital assets

Don’t be surprised if you come across people selling virtual land and other assets in the upcoming future.

4. Identity tagging

Spoofing and other illegal activities have been a major headache for governments across the world. With NFT’s adoption, you can soon safeguard critical assets from frauds and seamless verification. 

2021 can well be the year of the NFTs

The first quarter of 2021 saw massive adoption and NFT becoming a hot topic. We are yet to see the use cases in tandem and cannot wait for NFTs to unearth alternative possibilities. That being said, it is imperative for us to be cautious before adopting it in a full-fledged manner.

KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.


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