Can Everything Be NFTized? What’s the Value of NFTs?
A digital work of art sold for $69.3 million, a picture of a rock for $140,000, an ape avatar for $180,000 — you name it. NFTs have taken the art space by storm since 2021. As a growing number of artists, celebrities, companies, brands, and individual collectors join the game, the NFT has also come into the spotlight in many other sectors as a highly sought-after business innovation.
Statistics from CoinMarketCap show that the market cap of NFT projects has skyrocketed since early 2021, from a low base in 2020. The global NFT market cap has topped $10 billion to date. This is undoubtedly an incredible achievement.
Driven by the strong momentum of NFTs, digital collectibles emerge with significant growth potential that cannot be overlooked. Many tech giants have also entered the game, creating a conducive environment for myriad possibilities between digital collectibles and other spaces. You must be curious: what is an NFT? So what’s its draw, and why are so many people rushing into this field? Today Truly is here to help you find out the answer.
What is an NFT?
The acronym “NFT” stands for “non-fungible token”. Non-fungible tokens are a unique form of crypto assets that cannot be interchanged. This makes NFTs a perfect embodiment of the uniqueness and rarity of all artworks, whether they are in text, audio, or video — and even digital collectibles and online video games.
Simply put, an NFT can be seen as the digital form of an artwork.
The main features of NFTs can be summarized into two words: rare and unique.
Rarity is the most important attribute of NFTs. Creators may decide or produce a particular form of art as “resources” and limit the quantity of such resources to ensure their rarity.
Each NFT has a unique “identifier”, which is permanent and unchangeable.
What is the core value of NFTs?
It might be elusive for many that a Bored Ape avatar can be sold for nearly $200,000. However, there must be some logic behind such a price. Based on the decentralized, tamper-proof blockchain technology that helps confirm ownership with cryptographic algorithms, the value of NFTs lies in the following aspects:
1. NFTs can protect users’ ownership of their artworks
NFTs, as a brand-new asset category, are irreplaceable and unique. These tokens cannot be replicated, as their ownership and transactions can be tracked on the blockchain where they are stored. The information of an NFT, including its first owner, the time of each purchase and sale, and the date and time when it was minted, is open to all.
Ultimately, an NFT’s owner can transfer the ownership to others without involving any centralized platform or third party. In that way, NFTs offer a novel approach to protecting users’ ownership.
2. NFTs provide more liquidity and trading options
Various types of assets can be NFTized, such as pictures, videos, music, and artworks. Assets not commonly traded, including items and land in games, can be bought and sold easily through NFTization. For instance, a virtual land in Axie Infinity can be sold on NFT platforms. This new form of trading outperforms the traditional one with higher efficiency and lower cost.
3. NFTs are a great way to represent identity
Our identity plays an essential part in our daily life. It allows others to understand who we are.
That’s why many collectors and artists have begun to use NFTs as their digital identities, which boosts the growth of NFTs and the ecosystem. For instance, the BAYC NFT owners would use the NFTs as their avatars on social media platforms, which works as a great self-introduction that expresses themselves to people. It’s also an effective social-networking tool potentially bringing in benefits to avatar owners: as the avatars double as the BAYC membership, others would recognize them.
4. NFTs offer creators more benefits
NFTs’ smart contracts allow creators to gain proceeds from every sale, ensuring that they earn fair profits by selling NFT works. Creators can earn royalties from trading in any NFT market or through a peer-to-peer approach.
For example, NFT creators on OpenSea can set a royalty of up to 10%. Artists can sell their NFTs and earn royalties from each trade of them. The royalties they can earn will rise as the NFT appreciation. In other words: the more valuable the artwork, the higher the returns for artists.
What are the use cases of NFTs?
At present, NFTs are closely tied to art. The classification on OpenSea shows that NFTs have made their way into a number of fields, including artworks, collectibles, music, domains, and virtual space.
GameFi also correlates with NFTs and is one of the major use cases of NFTs. Some known examples include the sandbox game Decentraland, the esports game Gods Unchained, and Axie Infinity, the game featuring collecting and feeding mythical creatures. Unlike traditional games that prohibit selling or transferring in-game props such as rare weapons and skins, NFT-based games feature tokenized props that can be transferred or traded among players.
Another realm that sees an increasing presence of NFTs is art.
NFTs grant artists the copyright of their works and guarantee buyers the authenticity of their purchases. Meanwhile, blockchain offers a way to certify ownership. It frees artists from having to resort to third parties for ownership protection and grants higher returns to artists by eliminating any form of intermediaries.
Other sectors such as collectibles and music also have robust demand for NFTs. For example, NBA Top Shot is an NFT collectible card game that allows users to buy, sell, and collect the most epic NBA moments.
Beyond what has been mentioned above, NFTs can also be applied to physical assets, proof of identity, and negotiable instruments, among other fields.
1. Physical assets：NFTs can be used for real estate properties like housing and other physical items, allowing traders to exchange NFTs for the value of the physical asset without exchanging the physical object itself.
2. Proof of identity： Each NFT is unique, so it can be used to verify identity, birth certificates, driving licenses, academic certificates, etc., all of which can be stored securely in digital format, immune from abuse and tampering.
3. Negotiable instruments： When in circulation or traded, financial instruments carry a large volume of information. With NFTs as the vehicle, it will be easier to track and authenticate ownership. Moreover, the trading of various NFT assets is expected to form a particular market segment in the financial industry.
The explosion of the NFT market obliges us to keep a cool head and explore ways to create more value for the market with NFTs instead of fueling the hype blindfold. What more surprises will the “magical” NFT world bring to the market? Stay close with Truly to find out!
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