24 January 2022
2 min read
Non-fungible tokens (NFTs) took the investment market by such a storm that according to the NFT marketplace tracker nonfungible by the march of 2017more than $500M in USD had been exchanged over its sales. However, despite the explosive hype, there is a lot of confusion around understanding NFTs and navigating their way forward.
What are NFTs?
NFTs are exclusive digital assets that are managed on a blockchain network. however, the confusion arises herein: NFTs don’t represent the actual asset but only a record of its sole ownership. as the terms of transaction differ from NFT to NFT, here are the criteria that define ownership of NFT-
· Rare and unique: Each NFT is unique in the sense that it cannot be copied, substituted, or subdivided. every digital asset is one of its kind.
· Interoperable: NFTs can be traded and transferred across crypto wallets and marketplaces. this enables users to trade their NFTs on different platforms, for instance, selling the skin of a video game gun.
· Immutable: Once the NFT is encoded on the blockchain, it cannot be tampered with which allows owners to validate the authenticity of their digital asset.
· Ownership: Holding the NFT confirms the ownership of the digital asset.
The process of owning an NFT is simple. an individual only needs to have a crypto wallet that can be connected to the NFT marketplace which will enable them to mint or list their NFTs.
The growth of NFTs
While NFTs aren’t new, their recent hype can be attributed to the “wealth effect” wherein individuals spend more as their net worth increases. in this scenario, towards the end of Q1 ‘21, the price of ether exploded by 1000% and bitcoin surged by 600% which meant significant returns to early crypto buyers. Meanwhile, those who would purchase expensive NFTs were already settled in the crypto marketplace.
Owing to their immense popularity, NFTs present a huge potential for gaming and digital artists who can sell their artwork directly to users. Recognizing its scope, reputed brands such as Taco Bell, Pringle’s, NBA, as well as celebrities such as Paris Hilton and Lindsay Lohan hopped on the NFT train to auction their digital assets.
The Challenges and Drawbacks of NFTs
Following are the challenges that might hinder the progress of NFTs: -
· The lack of credence on the NFT system as the transactions can be both expensive and slow
· Despite “smart contracts” on the blockchain, its legal enforceability is questionable
· The environmental impact owing to the colossal carbon footprint of blockchain networks
Despite the challenges, NFTs have an immense growth potential that goes beyond the gaming and digital art ecosystem. It can enable brands to come up with new ways for distribution and monetization and also allow companies to delve deeper into DeFi and NFTs as evolved financial services. as the applications and protocols continue to build on this latest tech, its demand in the coming years is sure to surge.
To know more, you can read the article here.