Unless you are on a social media detox, you would have likely heard of the craze surrounding NFTs today.
From digital artist Beeple’s Everyday collection going for US$69 million to Twitter co-founder Jake Dorsey selling his first-ever tweet for US$3 million, NFTs are taking the digital world by storm.
Despite all the hype, what are NFTs and is the excitement surrounding them justified?
Firstly, let us break the term NFT down. NFTs is the acronym for non-fungible tokens. Though it may sound like a mouthful, the concept behind it is relatively straightforward.
According to Investopedia, fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. An example of a fungible token is bitcoin, which have similar copies and can be traded between each other.
In contrast, NFTs are, as you guessed, non-fungible. This means there is only one authentic copy of the item and they cannot be traded or replaced with a similar item.
Their certificate of authenticity resides on blockchain networks. At any one time, these certificates are in the possession of a single individual.
Despite the recent virality of NFTs, it has been a mainstay in the digital creative world since 2017 through Cryptokitties — a game that allows players to purchase, collect, breed and sell virtual cats.
These cats were non-fungible and each design was unique. It was reported the highest price a virtual cat fetched was north of a million dollars.
Besides virtual felines and artworks, NFTs can take the form of different assets including gaming items and playing cards.
With celebrities including Mark Cuban and Garyvee voicing their optimism about the future of NFTs, the fear of missing out (FOMO) has set in. So, how can you own an NFT?
Similar to marketplaces such as Amazon and eBay, there are different channels for users to purchase NFTs with their cryptocurrencies.
Popular platforms include Rarible, SupeRare and Nifty Gateway. Individuals can also create their NFT and list on these sites. However, one needs to be mindful of the ‘gas fees’ charged by these platforms for the effort to list each piece.
Amid all the hype, is the hype around NFTs justified?
While it is anybody’s guess if it will take off in the long-term, its current prospects look promising.
NFTs represent a welcomed solution for the booming creator economy. Artists will get their due credit for their efforts, putting an end to duplication and intellectual property violations.
In the larger context of decentralised finance, NFTs could potentially serve as collaterals for loans in a lending protocol. Imagine collateralising your Beeple art piece for a multi-million dollar loan!
As with any new hype, there are bound to be detractors of NFTs too. Some have expressed concern over the valuation of NFTs, given the lack of comparable items to benchmark against.
Meanwhile, others believe the value of NFTs lies in the value of the purchaser and it could turn into an illiquid asset should there be a lack of people who share the same view.
Ultimately, NFTs represent an exciting innovation in the blockchain and cryptocurrency ecosystem. As mentioned earlier, only time will tell if it will live up to its potential. Until then, it is certainly a space we should keep our eyes peeled on.
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