NFTs – Beyond the hype

(This article is not financial advice. Ensure to do your research before putting in your money in this volatile asset)

TL;DR

NFTs (Short for Non Fungible Tokens) are codes that represent unique digital items like art, game items, songs, videos, collectibles.

What does fungible mean?

Fungible means interchangeable. Anything which can be exchanged with another. For example, you may exchange a dollar bill you have with another dollar bill. It can be easily exchanged. Nothing changes as both represent the same value.

But if you own an original rare collectible, Will you exchange it for a copy of the collectible? The value of the original collectible and the copy are different even though they look the same. The collectible is non-fungible as both the collectibles have different values and they cannot be traded for each other.

What are Non Fungible Tokens?

So as the name suggests NFTs are not interchangeable.

NFTs are not digital items themselves. Nor do they prevent copying the items. 

They are like a certificate.

Each NFT contains the information needed to represent unique assets. 

Why are NFTs important?

Let’s take the example of a physical painting. Many people have copies of the painting of the Mona Lisa in their house. But the original one is present in a museum in France. Since it is a physical painting we trust that the museum has the real painting and not a replica.

To prove the authenticity of digital items we have NFTs. The tokens help in verifying the authenticity and ownership history.

This information makes NFTs act as proof of authenticity and ownership. It also makes the transfer of ownership of the digital items hassle-free.

Are NFTs tamper-proof?

The NFT data is stored on the blockchain. And Blockchain is immutable.

These tokens are verifiable by anyone as the blockchain is accessible publicly.

What does it mean when someone buys an NFT?

Case 1: Buying the ownership and commercial usage rights of a digital item.


This type of NFT purchases transfers the ownership of the item along with the rights to use them commercially.

Recently a digital artist known as Beeple auctioned a collage of 5000 digital images for $69 million.

The buyer bought a NFT and not image itself. The buyer now has ownership of the art.

Case 2: Buying a digital trading card.

Buying a NFT doesn’t always mean rights to commercially use them.

For example: If you buy NBA top shots NFTs, it doesn’t give you the right to own a player or the content of the video. 

https://twitter.com/nbatopshot/status/1376942301101051904?s=21

It is similar to buying a trading card for personal use. 

Just like you may hold or sell your rare mint trading card, you may hold or sell this NBA top shot NFT.

But why does anyone buy digital art?

One of the common arguments against digital art is that anyone can easily copy the file into their personal computer. Also, anyone can share the item infinitely.

While the argument is true, The same applies to physical art as well.

Taking the example of the Mona Lisa painting. 

A lot of physical copies, as well as a lot of photos of the painting, are being shared.

This increases the popularity of the painting even further and ultimately the value increases.

Similarly, the value of the original digital art piece will also go up once it becomes famous and more people start sharing it.

Another reason why people are buying NFTs is to resell. They sell it after for a profit.

Where to buy NFTs?

Multi item marketplace (collectibles, gaming items, domain names, digital art and others)

  • OpenSea
  • Mintbase

Digital Art marketplaces

  • MakersPlace
  • Rarible
  • Async Art

Collectibles

  • NBA Top Shots
  • CryptoKitties

Game items

  • Axis infinity

What is in it for the Creator?

The NFTs are a type of contract. It can be set in such a way that the original creator gets a royalty for the sales of their art in the secondary market. 

The cut will be added each time the art is sold. 

So if you are reselling the NFT then it means money for the original creator as well.

For example,

You buy NFT from the original creator for $5000 and the creator has set a 20% royalty on future sales of the art.

If the value of the original art increases over time and you sell it for $10000. 

Then the original creator will get $2000 as royalty. 

Endless possibilities with NFTs

Few areas where NFT is being implemented 

  • Digital Artists: Buying and Selling digital art NFTs is already popular . Another use case of NFTs which might gain popularity can be the fractional ownership of valuable items. Imagine you owning a thousandth of Beeple’s “First 5000 days”.
  • Musicians: NFT will help musicians in better monetisation of their songs. Musicians Get Only 12 Percent of the Money the Music Industry Makes – Rolling Stone . NFTs are the gateway for the fans to own creations of their favourite musician.
  • Authors: Token gating content. Only those readers who have the token can access the author’s content. 
  • Ticket sales: Verifying the ownership of the tickets will be easier with NFT. Another possible use case will be to discourage scalpers from buying tickets to resell them. If the resale cut is set high, it will allow genuine fans to have a chance to get the ticket at the original price.
  • Blending physical and digital products: Nike has a patent to have NFT sneakers based on their physical sneakers. 

Conclusion

The usability of NFTs is being overshadowed by the big bucks news. The supply side is becoming popular faster than the demand side.

Once the hype cools down and there is an increased understanding, hopefully, we will see a lot more use cases.

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