How do NFTS Generate Value?
Cryptocurrency and blockchain are disrupting the current financial landscape by digitalizing money. Blockchain technology will change how money gets stored, sent, and managed. Technology is continuously being developed and will help take the financial industry and more into the next generation of efficiency and innovation.
Fortunately, the positive disruptions brought by these technologies are not only limited to finance. Cryptocurrency has also changed how people interact with real-world and digital assets in the form of non-fungible tokens (NFTs).
NFTs bring value to people because they can be attached to scarce physical and digital assets and improve how we interact with them. Moreover, anyone with stable internet access will find that non-fungible tokens are more useable, accessible, and transferrable than traditional ways of buying, selling, and storing assets.
NFT innovations have not only improved how we interact with our assets but also how we earn from them. For instance, by tokenizing your assets, you can sell them in a worldwide marketplace where you can easily find buyers. You can also opt to fractionalize your assets and decrease the barrier to entry for investors. All these and more!
This article will discuss NFTs, their technology, and how you can use them to generate value.
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What are NFTs?
To better understand non-fungible tokens, you must first understand the meaning of fungible. The textbook definition of fungible is “something (such as money or a commodity) of such a nature that another equal part or quantity may replace one part or portion in paying a debt or settling an account.”
For example, a $1,000 bill can be swapped with ten $100 bills and still hold the same value, which means the $1000 bill is fungible.
When something is non-fungible, it is unique and cannot be copied, substituted, or subdivided. So, for example, if you have a $1000 bill signed by Marilyn Monroe, it becomes entirely unique and is no longer worth ten $100 bills.
Non-fungible tokens are unique and distinguishable digital tokens representing something with perceived value. Each token’s history is recorded in the blockchain and cannot be altered, so it can never be destroyed or taken away from its owner.
NFTs can be used to digitally represent anything from real estate, art, and virtual land in online games to intellectual property like music, photos, videos, and more.
These tokens, coupled with the emergence of blockchain technology, open up a whole new world for artists, collectors, and investors. These technologies are changing how value is formed, sustained, and shared online in a trustless and decentralized manner.
NFT games differ from just collecting NFTs and storing them in a cryptocurrency wallet in anticipation of value appreciation in the future. Simply put, these are games that use NFTs in their rules, mechanisms, and player experience.
For instance, an NFT used in gaming can represent a game avatar, item, or power-up. You can then purchase or trade your in-game NFTs with other players to gain profit or advantages in gameplay.
An NFT is not necessarily the artwork itself. Blockchains have digital contracts to support the legalities of creating and copyrighting digital art. Thus, NFTs function as digital certificates of authenticity and proof of ownership of the work. This technology will allow creators to name the rightful owners of their art and provide them the rights to access and resell them.
By using NFTs to represent their work, artists do not need to scramble and chase clients for payment, and clients do not need to doubt the authenticity of the art as they can trace them back to its original creator using the blockchain.
In addition, some NFT art comes with royalties. This means that creators will get a small percentage of the proceeds every time a secondary owner sells their artwork.
How Can People Generate Value from NFTs?
Attach Assets to NFTs
Blockchains enable the creation of intellectual property and digital smart contracts for physical assets. With the help of blockchain technology, these smart contracts can track ownership and prove the authenticity of physical or digital property.
These smart contracts attach permanent data to the property and distribute it to a decentralized blockchain, making the data tamper-proof and unchangeable.
As a result, people can get value from NFT technology by attaching the token to a real-world asset such as intellectual property or real estate. This is one of the many uses of NFTs that people have explored so far.
For instance, one can use NFTs to significantly reduce the cost of storing and protecting real estate titles. In addition, by attaching NFTs to real estate titles, landlords can have a way to prove their ownership of the property and provide potential buyers with an accurate way to track the property’s ownership history.
Moreover, NFTs can provide opportunities to explore fractional ownership. This will make it possible for several people to own an asset attached to an NFT, effectively lowering the barrier to entry in real-world investments such as real estate, gold, silver, luxury watches, and more.
For example, by creating tokenized properties, homeowners could sell shares of their real estate to numerous investors without spending on and needing brokers or intermediaries. The same fractionalization concept can be applied to any other real-world asset.
The terms of their fractionalization, such as equities and profit splitting, will be determined by the smart contract associated with the NFT.
Also Read How to invest in NFTS
Non-fungible tokens bring considerable innovation to how people interact with assets, but the technology is relatively young. There’s more to explore regarding their use cases. Likely, the most useful applications of NFTs have yet to be imagined, and like any novel asset class, the future of the technology is undetermined.
In the current market landscape, regulators will need to establish more detailed legalities around NFTs and clarify how they can adequately co-exist with traditional forms of ownership.
Nevertheless, the underlying value in NFTs is digital proof of ownership. This will be essential in the coming years as blockchain technology aims to decentralize money and asset management.