If we had to use one word to describe the Blockchain world it would probably be “innovation”. The Blockchain realm has undergone a lot of innovations till date. Decentralised Finance is the perfect example of how sheer innovation has been the driving factor of the Blockchain evolution.
However, one specific concept has grabbed the attention of the whole blockchain community after Decentralized Finance (DeFi): Non Fungible Tokens (NFTs). With a plethora of features and applications, NFTs have created a strong foundation in this blockchain ecosystem today.
Therefore, NFTs are bridging the gap between real-life use-cases and Blockchain-based applications. Want to know how? Continue reading.
What are NFTs?
Non Fungible Tokens (NFTs) are the distinctive crypto assets that carry unique information and are non-interchangeable and indivisible. In essence, the uniqueness of the data stored inside the NFTs makes them non-interchangeable. Moreover, a user can not share a portion of their NFT with someone else over the blockchain network due to its indivisibility feature. NFTs are based on several protocol standards, however, ERC-721 is the first among them all and the most popular one.
Let’s look at an example to understand why NFTs are an integral part of the Blockchain ecosystem. We can think of NFT as a plane ticket. Since all the plane tickets of an airline may appear the same, however, this doesn’t mean one can opt for any seat inside the plane, thus it is non-interchangeable. Moreover, the ticket owner cannot share the plane ticket or its part with anyone making it an indivisible asset. Characteristics such as passenger name, seat number, class type, destination, time of departure, time of arrival, and plenty others are responsible for giving the uniqueness factor to the ticket. Therefore, it can be said that the data associated with the ticket makes it unique. When this data is stored on Blockchain to represent the ticket, we can call it an NFT.
Such unique features of NFTs offer a wide variety of user applications. NFTs have a strong ability to introduce millions of first-time users to the crypto sphere. Even though NFTs is a nascent concept, the impact of NFTs can already be seen in various sectors across the globe today. Some of them are:
Protecting, showcasing, and managing art today over digital platforms is really a nightmare. Digital artists face numerous difficulties to handle their own creations and validate their authenticity. However, with the advent of NFTs, one can easily buy and showcase the artifact digitally. It has also helped to provide proof of ownership to validate the authenticity of the artifacts. Till date, NFTs in the art segment has seen a total volume of 13 million USD(the data mentioned here is of 11 January 2021)
The real fame of NFTs geared up with CryptoKitties in 2017. To be specific, the hype was created when some assets were sold for very high prices on this platform. CryptoKitties sold ‘cryptocats’ and the collectors earned rewards by creating the collection digitally. Nowadays people are digitizing traditional collectibles such as coins, historic documents, and more using NFTs.
Non-fungible tokens have revolutionized the entire procurement method of virtual assets over some crypto platforms. ‘Ethereum Name Service’ has been selling their “.ETH” domains using NFTs, just as “.crypto” domains from ‘Unstoppable Domains’.
NFTs have allowed gamers to transfer their items among people if the game is developed over the blockchain network. For all the off-crypto games, it’s still prohibited. Gaming and NFTs have been one of the most astonishing synergies of the decade. Adding value to the in-game assets by leveraging NFTs has created massive liquidity in the gaming ecosystem that has never been experienced before.
With the world growing more digital day by day, NFTs are a potential solution for tokenizing the property or other real-world assets. It can completely revolutionize the ownership, legality, and security of the asset. The ideas are still in the early stage of execution and a lot of innovations are possible in the near future.
The prime features of NFTs focus primarily on uniqueness. NFTs could digitize the identity ranging from education qualification, medical history, personal identity documents, etc, and can provide better control over the data.
The downside of NFTs
Non-fungible tokens are extremely new over the blockchain network. Within such a short time span it has accommodated diverse applications in the market. However, as every coin has two sides, NFTs have their fair share of downsides and need considerable improvements. For instance:
- Building a decentralized application with NFT usability is really hard and tedious.
- NFTs are still inaccessible to mainstream users.
- If the market collapses, the users can incur huge losses ( ‘hot potato’ effect).
- The entire process needs to be greatly simplified for its mass acceptance.
NFTs, being a radically new and innovative technology, is undoubtedly going to evolve in the future. With the world going entirely digital especially after the recent pandemic, NFTs have the potential to settle the question of ownership completely.
It’s no revelation that the future of DeFi is bright and NFTs are a catalyst of that future, accelerating mass adoption and providing more meaning to the DeFi and Blockchain-based applications.