The Web 3.0 revolution has brought many innovations with it. One such creations is the emerging asset class that’s known as NFTs.
Short for non-fungible tokens, these digital collectibles are growing at unprecedented rates. From a mere $82.5 million in sales in 2020 to $17.7 billion in 2021, the sales volume for these assets has multiplied 200 times over in a matter of two years only.
At the same time, NFTs are often misunderstood, as their true potential extends far beyond the limits of artwork only.
This article will sketch out all the crucial details to bring you up to pace with this evolving space.
To understand NFTs, we can take a hint from their name. The “non-fungible” part refers to assets that are not interchangeable. Each item is supposed to be one of a kind.
In practical terms, it means that trading an NFT for another should be like exchanging a painting. In such an exchange, each party will have a painting in the end, but the value of those paintings will differ since both are unique.
That’s in stark comparison to cryptocurrencies because, for example, each Bitcoin is worth exactly the same. There’s no distinctive feature that would make one worth more than another. Hence why cryptocurrencies are fungible assets, whereas NFTs are non-fungible.
However, that’s where the difference between NFTs and cryptocurrencies ends for the most part. These non-fungible tokens offer the same benefits associated with cryptocurrencies, including decentralization, privacy, security, traceability, and irrefutable ownership—but with the added perks of non-fungibility and ownership representation.
A common misconception surrounding NFTs is their storage. People intuitively assume that these digital tokens represent the underlying asset by storing it on the blockchain. In reality, however, NFTs only represent the ownership record of an asset.
An easier way to understand this concept is to consider a property deed. While that piece of paper does not hold the underlying asset in any way, it still captures its value by storing the ownership record. Similarly, NFTs contain the ownership record of an asset, not the asset itself.
This distinction is important because it’s unlocking a diverse assortment of applications for NFTs that most people didn’t realize were a possibility.
Since NFTs can represent the ownership record of virtually any asset imaginable, innovators are constantly imagining exciting new ways to leverage this technology and materialize its true potential into human-centric experiences.
Some of the most promising uses include but are not limited to:
From pixelated Cyber Punks and Bored Apes to mesmerizing pieces of extraordinary imagination, art is perhaps the most well-known application of NFTs.
Unlike the legacy art market where forgery and theft are alarming threats, NFTs are incredibly resilient as they have a foolproof track record of ownership. Another positive factor is the ease of buying and selling NFTs, which explains the higher liquidity when compared to physical artwork.
Profile photos are another extension of this category as NFTs are widely used for this role. Even popular social media platforms are exploring native verification support for NFT profile photos, with Twitter and Reddit having already rolled out these features.
Apart from art, NFTs can serve as collectibles for a variety of categories. For instance, sports teams are already selling millions and millions of dollars worth of collectible NFTs that fans can buy to support their favorite team on top of earning some unique perks. These perks can range from exclusive insights to backdoor access in events for a handful of lucky winners, and much more.
NFTs are also gaining momentum as a ticketing solution. What makes them particularly attractive is the fact that NFT tickets are bound to retain some value even after the event is concluded. In fact, it’s likely that some tickets will experience a dramatic price appreciation if the event goes viral.
Paper tickets are in stark contrast to NFTs, as they become effectively worthless once the event is over, at least in the vast majority of cases.
With the metaverse on the rise, the market for virtual collectibles is going to experience a boom unlike anything before it. Mimetic Theory dictates that people value things that others value. Once a huge part of the population enters the metaverse, we’ll see a paradigm shift take place in terms of what we as a society value and seek out.
Evidence of this has been mounting for decades, as proven by many massively multiple online games (MMOs) generating billions of dollars in revenue by selling virtual in-game items—despite the fact that these items are locked within that game and have zero value outside of it.
The metaverse is going to flip that equation on its head by leveraging NFTs to represent all valuable items within its realms, from everyday resources to rare collectibles.
For instance, parcels of land on popular metaverse platforms are already fetching a premium, with the average value having jumped from under $1,000 to around $13,000 in less than a year. It’s worth noting that we’re talking about averages here, as the truly premium spots can run in the millions of dollars.
NFT characters, also known as avatars, will be another driver of massive sales volume as people rush to acquire gripping characters and then customize them with appearance and attribute enhancing items.
From gadgets and jewelry to apartments and acres of farmland, NFTs can represent the ownership of any asset. Combined with their superior liquidity, NFTs can and already are disrupting physical commerce.
Many startups are already offering an opportunity to bring real estate on the blockchain and then split it into fractional NFTs. Not only will this make real estate accessible to a global audience, but it will empower small investors to benefit from the world’s greatest asset class with as little as several hundred dollars of capital.
Since NFTs cannot be tempered with, many brands are already leveraging them to verify the authenticity of their products. This is particularly useful in the second life of clothing as secondhand market is riddled with fake items. NFTs can cut back on that by offering an irrefutable proof of authenticity.
On the other hand, NFTs can also represent credentials. From academic classes to online courses and advanced tests, many educators are leveraging NFTs to reward their graduates with a solid proof of their accomplishment.
- Short for non-fungible tokens, NFTs bring the benefits of a blockchain token to a diverse array of assets by storing their ownership record on-chain
- While artwork is the most widely used application at this point, other applications are already emerging and may take over with the passage of time
- Based on the trajectory in terms of market size and number of participants, NFTs are primed to continue their upwards journey unless some drastic event changes it
- NFTs will continue to evolve and, in the future, may bring blockchain in areas that were previously unimaginable
OP-ed disclaimer: The opinions expressed in this article are the author’s own. Cryptyde, Inc. does not endorse nor support views, opinions or conclusions drawn in this post and we are not responsible or liable for any content, accuracy or quality within the article or for any damage or loss to be cause by and in connection to it.