BLOCKCHAIN IS SOOO EASY
Explained Easily: The Best guide For Beginners interested in NFT (part 3)
NB: Blockchain, Strictly for Lazy Beginners
Table of Content
- What are Tokenomics
- What are Non-Fungible Tokens
- Tokenomics of Non-Fungible Tokens
- Loopholes in Non-Fungible Tokens Tokenomics
Whether you are a newbie or an expert, the chances that you have heard the term NFTs (Non-Fungible Tokens) are high. And if you have not, now you have. This article will discuss the tokenomics of NFTs (i.e., the features diverse NFTs possess that set them up for success. Before we dive into that aspect.
What are Tokenomics?
Tokenomics consists of two words: Token and Economics. Tokenomics is the economies or policies surrounding a Token. Tokenomics are characteristic of tokens that determine their economic success with users and potential investors.
For example, for Mr. A, an adult applies for a job in company B, the Curriculum Vitae (CV) he submits would contain his job experiences, skills, and probably links to his previous works. In this instance, Mr. A is a token, and the facts in his CV are his tokenomics.
This example describes tokenomics as the total characteristics that make up a token. These characteristics could either lead to the success or downfall of the token in the Crypto Space.
Now that we have basic knowledge of what tokenomics represents let us dive into NFTs.
What are Non-fungible Tokens (NFTs)?
Non-fungible tokens (NFTs) are digital tokens, just like cryptocurrencies (bitcoin), with an exciting twist. NFTs cannot be exchanged for one another. 1 bitcoin in Nigeria is equivalent to 1 bitcoin in China (and everywhere in the world). Same with fiat currencies, 1$ is equal to 1$ worldwide.
NFT 1 can never be equivalent to NFT 2. Even if NFT 1 is identical to NFT 2, they are two separate identities on the blockchain.
How is this possible?
All NFTS are created on a blockchain (i.e., they are made using blockchain technology).
Different types of NFTs belong to different categories based on the industry they were created.
Some examples of NFTs types are listed below
The next question is:
Why did NFTs become so popular in our today’s world? Why are companies from all industry fields integrating NFTs into their system?
Our answer would be Tokenomics. Tokenomics of NFT made the world fall in love with these digital tokens.
Tokenomics of NFTs
Tokenomics of NFTs are features you should look out for before purchasing any NFTs. Listed below are these features.
NFT Total Supply
Token supply means the total number of NFTs created during the onset of the NFT project.
An NFT is more valued in the NFT world based on its rarity.
For example, Artist A creates a painting as an NFT, while Artist B creates a painting but creates 10 NFTs to represent the painting.
The NFT that may be valued more is the Artist A NFT. The reason for this is because of scarcity.
Humans love rare assets. The lesser the supply of an NFT, the more likely its success.
This doesn’t mean NFTs with large supply could not attain success, but it depends on the field the NFT was created for. An NFT created to represent physical school certificates would not rely on supply to be successful.
Real Ownership
NFTs promise absolute ownership of digital files and some cases, physical goods.
Fashion houses would invest in NFTs to counterattack imposter products.
For example, fashion designers would request customers purchase an NFT to access their new collections. In this era of social media and show-offs. People would love to boast about buying the real by wearing the fashion item alongside a picture displaying the NFT it comes with.
An NFT that promises real-world ownership in hands with a digital license would be more attractive than an NFT that only promises digital ownership.
Non-Fungible Token Utility
Token utility means use case. Is there a use case for the NFT you want to purchase as an investment in the blockchain space and physical world?
An NFT that provides an investor with a level of use case more than its price pumping would be a solid token to invest in.
For example, a ticket NFT that promises a whole month of free meals in a restaurant would be more attractive than an NFT that promises nothing. The value of an NFT asset transcends more than price but use case.
This is why game NFTs have a higher chance of success than any other type of NFT. Game NFTs can be used both in-game and out-game.
NFT sales.
This is one of the ways to detect scam sellers.
This is usually applied to the artist selling. An artist who has successfully sold NFTs could be a safer option when scouting for an NFT to add to your collections.
This doesn’t mean his subsequent NFT sales may not flop. They have been cases of prominent artist NFTs sales not performing up to their previous sales.
Incentive mechanism
This is a way of rewarding NFTs holders. An NFT incentive mechanism is one sign a potential investor should be on the lookout for.
There are various ways an NFT can lure investors. Examples are:
- Voting and governance: NFT holders can have a say in decisions and input concerning the NFT project. This feature is usually best used in blockchain games.
- Staking rewards: Many NFT projects offer staking rewards in different percentage yields. This means an owner can still earn on an NFT without selling it.
The above NFT tokenomics are not disaster-proof. An investor could follow all these rules and still end up with a shitty NFT.
What are the loopholes in NFT tokenomics
Access
Sadly, before one can own an NFT, one needs money. Before an NFT, can be created minting fees are required. Most NFTs are built on the Ethereum blockchain, and the fees for minting range from 70$.
This is discouraging to one who is interested but lacks funds.
Hype and Inflation
Most successful NFTs are only successful because of the hype surrounding them. Some NFTs offer no value but are priced very high in the marketplace. This could be discouraging to investors. After the hype the NFT becomes useless to the investors, leading to loss of invested funds.
Transaction Fees
Buyers and sellers of NFTs must pay various gas fees. They pay not only transaction fees but also a percentage fee to the platform the sale was made on. This is no fun for some creators because the lure of NFT in the first place was the whole total ownership of your NFTs.
We do not say bye but see you again. Before we see again, you can munch on this article discussing use of NFTs.
The comment is always open for questions, addition, and discussions.
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