N.F.T. the 3 letters that have managed to squeeze their way
into the crypto limelight just before the year ends…
Hey crypto nation is Layah Heilpern here with exodus.
There always seems to be a new buzz word in crypto and this time it’s NFTs or
non fungible tokens, so let’s delve into it and understand what they are.
Let’s start with the token part. A token is anything that can be traded or exchanged.
It doesn’t need to be actual money but there will be perceived value in it and so it can be traded.
In terms of non fungible tokens, think of ‘tokens’ as collectibles.
They can be anything from the physical world or the online world.
Tokens can be paintings, ornaments, clothing, or they can be characters in an online game
or even the characters gadgets like a sword or a gun. It can even be a website domain!
Essentially these collectibles are tokenized,
meaning they are given a cryptographic identity and put on the blockchain.
Tokens represent unique items and are not directly interchangeable with another token
because each token will have its own value.
This is what we mean by non fungible. Two items which on the surface seem the same,
are in fact not the same and therefore can be traded at different prices. If you collect action
figures or sports cards, you may already have an idea of what this is like. Two sports cards may
look the same, but the price will depend on what year it’s from, the condition, and other unique
factors. They are not directly interchangeable for one another. They are non-fungible.
An asset is only fungible if it’s interchangeable with any other asset of the same type. The most
common, everyday example is none other than cash. The US dollar IS fungible. This means
every dollar has equal value and is therefore directly interchangeable with another dollar.
A particular dollar's history doesn’t matter. Who it came from doesn’t matter.
A dollar is a dollar. The dollar in my pocket is equal to the dollar in your pocket.
But with NFTs, no two paintings and no two characters in a video game
are the same. They all have a different story and history. This is what gives each token
it’s unique value and therefore determines the different prices.
For example the value and so the price of a token can depend on:
How rare the collectible is, is it one of 100 or is it one of five?
If it is one of five, is it the original or is it the fifth copy? Also Is it one of a kind?
All these factors that give the NFT value need to be verified,
and this is where blockchain technology comes in.
By tokensing the items and putting it on the blockchain
it provides authenticity and trust, essentially weeding out potential counterfeits.
Also since every transaction is recorded on the blockchain
you can see the entire history of the collectible.
Where it was made, where it’s been traded and who has previously owned it.
All things which will impact the value of the token.
But with anything in crypto there is some controversy surrounding it…
Let’s go back to the online art example. Just with any art it can be traded. But when it’s online,
people can take a screenshot of the work and then have a saved copy of it.
Obviously this is only a copy, it’s not an original nor is it even the NFT,
it is a simple screenshot, a counterfeit perhaps!
But given how developed our technology is, it will look practically the same as the original.
So just as we say when it comes to beauty, the value here really is in the eye of the beholder.
With NFTs becoming more and more popular, there are companies that not only provide a market place
to buy NFTs, but also provide applications where you can store your collectibles in a virtual room.
A bit like your instagram and Facebook page being a virtual photo photo album.
Now given how fast technology is moving it doesn’t stop at art and collectibles...
Large crypto companies like Binance, are buying up huge amounts of virtual real estate
because there’s an expected crypto real estate boom!
The Sandbox is a blockchain virtual game and they are tokenizing the land
and selling it. So far they have raised 1.5 million dollars in land tokens!
Decentraland, a virtual world that’s similar to the Sims or Second Life,
also let’s residents buy and sell virtual property.
Land plots in decentraland are represented by non-fungible tokens on the Ethereum blockchain. If
you hold the NFT representing a land plot, you own the rights to that virtual real-estate - meaning
you can sell it to someone else, divide it up, build on it, rent it out — it’s your property.
But tokenizing real estate can go beyond the virtual world. There’s been plenty of talk about
putting house deeds on the blockchain as NFTs, to provide authentication and proof of ownership.
But the question on everyone’s mind is can it scale?
Given NFTs live on the ethereum network,
which has already shown signs of weakness when under huge scaling pressure…
We are yet to see whether ethereum 2.0 or other scaling solutions like Matic
will be able to facilitate a global network of online trading.
What other use cases can you think of for NFTs? Let us know your ideas in the comments.
If this video helped you understand NFTs, be sure to give it a thumbs up
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