Non-Fungible Token (NFTs)- How NFT is changing the digital economic landscape
NFT: Non-Fungible token
A Non-fungible token (NFT) is a unique and non-interchangeable unit of data stored on a blockchain. NFTs can be used to represent easily-reproducible items like digital files as unique items and use blockchain technology to establish a verified and public proof of ownership.
Copies of the original file are not restricted to the owner of the Non-fungible token and can be copied and shared like any file. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin.
The first Non-fungible token project was launched in 2015 on the Ethereum blockchain, and interest grew with the rise of interest in cryptocurrencies. According to NonFungible.com, sales exceeded $2 billion in the first quarter of 2021, more than 20 times the volume of the previous quarter. NFTs have drawn criticism with respect to the energy cost and carbon footprint associated with validating blockchain transactions.
Non-Fungible Tokens – Key Topics
- How does Non-fungible token work
- Standards in blockchains
Non Fungible Tokens – Working
An NFTs is a unit of data stored on a digital ledger, called a blockchain, which can be sold and traded. The Non-fungible token can be associated with a particular digital or physical asset and a license to use the asset for a specified purpose. NFTs can be traded and sold on digital markets.
NFTs function like cryptographic tokens, but, unlike cryptocurrencies NFTs are not mutually interchangeable, hence not fungible. While all bitcoins are equal, each NFTs may represent a different underlying asset and thus have a different value.
NFTs are created when blockchains string records of cryptographic hash, a set of characters identifying a set of data, onto previous records, therefore, creating a chain of identifiable data blocks. This cryptographic transaction process ensures the authentication of each digital file by providing a digital signature that is used to track NFT ownership. However, data links that point to details like where the art is stored can die.
An Non-fungible token is created, or “minted” from digital objects that represent both tangible and intangible items, including:
Today Non-fungible token is growing today on large scale, it is used in almost every field. Some of the common use of NFTs are as follow :
- Videos and sports highlights
- Virtual avatars and video game skins
- Designer sneakers
NFTs started as early as 2012-2013, with the inception of Colored Coins (CC). CCs are derived from Bitcoins and are viewed as small denominations. CC use cases include property, coupons, and subscriptions. The advent of CCs signaled the skyrocketing of Bitcoin’s capabilities, eventually paving the way for Counterparty.
Although NFTs have existed since Colored Coins (2012), they came to prominence in 2017 with a game called CryptoKitties, which enables players to buy and “breed” limited-edition virtual cats. From there, game developers adopted NFTs in a big way to allow gamers to win in-game items such as digital shields, swords or similar prizes, and other game collectibles.
Historical Activity of CryptoKitties
Besides gaming, NFTs are frequently used to sell a wide range of virtual collectibles, including NBA virtual trading cards, music, digital images, video clips, and even virtual real estate in Decentraland, a virtual world.
The Non-fungible token market ballooned over 2020, climbing to a market value of at least $338 million, from about $41 million in 2018, according to a report by NonFungible.com and L’Atelier. The surge in interest led to the expansion of online marketplaces such as OpenSea and Raible.
The market remains a fraction of bitcoin’s size, despite the high prices being fetched for some non-fungible tokens. In January 2021, the Bitcoin market cap reached an all-time high and had grown by over 400 billion U.S. dollars when compared to the summer months. The market capitalization of Bitcoin currently sits at more than 600 billion U.S. dollars.
Non-fungible token – Future
Artists are interested in NFTs because they offer a way to sell work that there otherwise might not be much of a market for. Also, NFTs have a feature that the creator can enable that will pay back a percentage every time the NFT is sold or changes hands, making sure that if an artist grows in popularity and balloons in value, they will see some of that benefit.
The Verge argues that NFTs can work like any other speculative asset, where one can buy one and hope that the value of it goes up one day, so the Non-fungible token can be sold for a profit.
Trading card games have been a natural fit for NFTs from the beginning. A physical card game like Magic the Gathering is much more than just a game. It’s an entire economy, with dozens of companion sites and marketplaces for buying, selling, and bartering.
The third-largest non-fungible token “asset class” (after gaming and digital art) is naming services, similar to “.com” domain names but based on decentralized technology.
While most of the experiments in NFTs have been in collectibles and games, other use cases are gradually coming online as well.
Binance recently came on board to issue holiday collectibles, and Microsoft released Azure Heroes, badges for contributors to the Azure ecosystem.
As the potential for NFTs continues to unfold, the arts and cultural economy could be shaken from the core.
How to Buy NFTs
If you’re keen to start your own Non-fungible token collection, you’ll need to acquire some key items:
First, you’ll need to get a digital wallet that allows you to store NFTs and cryptocurrencies. You’ll likely need to purchase some cryptocurrency, like Ether, depending on what currencies your non-fungible token provider accepts. You can buy crypto using a credit card on platforms like Coinbase, ByBit, Binance, and BitMex. You’ll then be able to move it from the exchange to your wallet of choice.
You’ll want to keep fees in mind as you research options. Most exchanges charge at least a percentage of your transaction when you buy crypto.
In other words, investing in NFTs is a largely personal decision. If you have money to spare, it may be worth considering, especially if a piece holds meaning for you.
But keep in mind, an NFT’s value is based entirely on what someone else is willing to pay for it. Therefore, demand will drive the price rather than fundamental, technical or economic indicators, which typically influence stock prices and at least generally form the basis for investor demand.
All this means a Non-fungible token may resale for less than you paid for it. Or you may not be able to resell it at all if no one wants it.
NFTs are also subject to capital gains taxes—just like when you sell stocks at a profit. Since they’re considered collectibles, however, they may not receive the preferential long-term capital gains rates stocks do and may even be taxed at a higher collectibles tax rate, though the IRS has not yet ruled what NFTs are considered for tax purposes.
Bear in mind, the cryptocurrencies used to purchase the Non-fungible token may also be taxed if they’ve increased in value since you bought them, meaning you may want to check in with a tax professional when considering adding NFTs to your portfolio.
Approaching NFTs just like you would any investment: Do your research, understand the risks—including that you might lose all of your investing dollars—and if you decide to take the plunge, proceed with a healthy dose of caution.
Non-fungible tokens – Blockchain Technology
A non-fungible token is generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends.
Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.
Non-fungible tokens are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another, hence, non-fungible. One NBA Top Shot clip, for example, is not equal to every day simply because they’re both NFTs. (One NBA Top Shot clip isn’t even necessarily equal to another NBA Top Shot clip, for that matter.)
Globally, there is a well-established potential of blockchain by value engagements. Currently, business strategy assessments are used to commission about 70% of enterprise blockchain initiatives.
According to NASSCOM, the Indian public sector has supported and driven blockchain-based projects involving more than half of the country’s states. Blockchain applications are being identified by businesses across a wide range of industries. Although only 8% of these are in production, the majority are expected to expand this year.
NFTs is a new era of Blockchain technology. It has diverted the view of the investor from cryptocurrency to digital art.
There are various options for investors, one can also buy coins with various payment options like a crypto coin, debit card, credit card, bank transfer, etc.
If you are looking for a long-term investment then request you to give it a try.
In the end like to conclude that NFTs is a new generation technology for long-term investment and one must give a try to it.
Also, read about different types of Cryptocurrency and the differences between them.