What Is Non-Fungible Token?

| Updated
by Adedamola Bada · 7 min read
What Is Non-Fungible Token?
Photo: Shutterstock

The NFT industry has grown from a market cap of $30 million in 2017 to over $300 million by 2020. This guide will help you to learn more about non-fungible tokens.

Ever since digital currencies began to gain popularity in the financial industry, the focus of the crypto community instantly rested on Bitcoin and other digital currencies. Surprisingly, this course of the event came with a silver lining, an innovation that would introduce another interesting class of digital assets, which would take the world by storm. Their name is non-fungible token.

A non-fungible token (NFT) is a special digital crypto asset that provides special services and cannot be traded with other tokens. This is quite different from digital currencies like Bitcoin and other similar assets which can be interchanged for one another. In other words, this asset usually takes trades on unique electronic collectibles such as virtual art and images, in-app-purchases, or other forms of digital assets on the web.

The advent of these NFTs can be dated back to 2012 with the induction of Bitcoin2x. They are also known as Coloured coins and they came in with the developer’s intent to embed the token onto the blockchain and the most popularly adopted Non-fungible Token is the ERC721 which works on the Ether ecosystem.

Special tokens are also designed for online gamers on the network to process payments and purchases. The unique properties of each token make it unequal in value or characteristics to other available tokens and they are all assigned a separate hash to identify them uniquely.

The need to claim ownership to innovations spurs from the growing value of the intellectual property which may soon be replicated or reformed and drops drastically in value.

Notion of Non-Fungible Tokens

A non-fungible token refers to a group of cryptographic tokens that can be used to symbolize assets that are not very common. Simply put, they are everyday assets or virtual assets that have been tokenized. They play so many roles, including verifying proofs of authenticity and ownership. Due to their inability to be interchanged, scarcity is no longer a stranger to the digital world.

How Do Non-Fungible Tokens Work?

Non-fungible tokens are designed to work on unique requests based on the specification of the owner which may include encrypted files or data, it is mostly used by CryptoKitties and Decentraland platform on the Ether blockchain to enable smart contracts.

The potency of the non-fungible tokens prevents copyright infringement in this smart age. The state of the art security offered by digital coins can therefore be induced into claiming sole rights to any property.

One major problem faced by the introduction of NFTs to the blockchain is that the technology is very well still in infancy and thus, the creation of decentralized platforms constantly runs into complications as well as meeting up with quality control.

This problem might seem much more difficult to overcome as blockchain development is quite tedious and assigned to several developers thus affecting the unity of protocols and their effectiveness.

Pros and Cons of Non-Fungible Tokens

Pros

  • Unlike most other cryptocurrencies, NFTs are unique in their way, meaning that the value attached to tokens in this category has all the potential to be high, yielding returns to early investors.
  • Like fungible digital currencies, the NFTs are built and secured on a blockchain system, ensuring that the token is secure, authentic, and safe to transfer between people who own the token in their wallets.
  • NTFs have introduced several millions of people to the world of cryptocurrencies, as many basic human interests are available in the virtual space.

Cons

  • One of the problems with non-fungible tokens is that you cannot own a part of one token, the investor must be financially capable to afford the price of one unit. Taking it into perspective, the value of one bitcoin is at a high of $20,000. Depriving people of lower financial status the liberty to invest and enjoy its returns.
  • The time required to create decentralized applications for NFTs to effectively run on is extensive, with the process extremely tricky, making it hard for the developers, and for subscribers who are new to the blockchain space.
  • The market is usually stable, but it collapses sometimes, leaving those who recently acquired valuables at high prices, cutting their losses following the drastic decrease in value.

Popular Non-fungible Tokens

There are several fraudsters out there, looking to prey on the struggling artist, stealing and selling to the highest bidder. With NFTs, Artists can create, develop, and safeguard their work, as well as freely showcase it on the internet without fear, as the intellectual and property rights are secured via the blockchain network.

NFTs have provided a potentially endless source of collectible items, with digital versions of celebrities available for purchase. There have even been talks of integrating valuables like signed merchandise from popular people available for purchase.

Popular gaming establishments prevent gamers from transferring items to friends and teammates via the service, but vis NFTs, they can be easily given and received, and possibly used in some other similar games.

ENJIN (ENJ) | Gaming

The blockchain game which was scheduled to debut in August on the WAX blockchain was developed by Travis Wright and Joel Comm, following months of deliberation. The idea behind the game is to feature fifty superheroes – all of which will be selected by top investors, on several cards, each card having a unique design.

The cards are to be designed with different degrees of availability, with the more rare cards being the most valuable.

Decentraland

This is the second most expensive non-fungible token sold last year. This was one of the most prized areas up for grabs on the virtual space, with the area having a monetization feature. It was eventually sold for 44% of the initial asking price, totaling to around $81,000.

Decentraland is like Minecraft. It comes with exciting games and art galleries, which are used to display NFTs.

Lil Yachty (Yachty Tokens)

$Yachty is a token created by American rapper Lil Yachty. Its sales took place on Fyooz, a social money platform, where buyers purchased the token at the sum of $15 each. It took just 21 minutes and 41 seconds to sell out the token, which amounted to the sum of $375,000. Lil Yachty promises that his venture into the crypto world is to provide his fans with more awesome experiences.

What’s Next for Non-Fungible Tokens?

Over the coming years, it is expected that several traditional brands begin to invest and operate in Non-Fungible Tokens as a means of expanding their reach and maximizing profits. The gaming sector is expected to make the first major break-in, with rumors of deals with established blockchain firms constantly appearing on the web.

Non-fungible tokens are exceptional because their users are not required to interact with the underlying blockchain technology. However, this does not hinder them from enjoying the numerous benefits of the technology, thereby making NFT projects well-positioned for mainstream adoption.

Conclusion

Cryptocurrency and blockchain is the next big thing, which is why millions of investors worldwide are seeking expert opinions and putting money into it with the hope of reaping rewards. It should however be noted that Non-Fungible Tokens are a relatively new concept, and as such, there will be several crashes of various sectors in the years to come.

The NFT industry has grown from a market cap of $30 million in 2017 to over $300 million by 2020, a massive 1000% increase in just 3 years. However, it is generally advised to not invest money that one cannot let-go-of in the case of failure. Those with low-risk tolerance should stick to more popular and established digital currencies that have encountered and overcome several challenges along the way.

Share:
guides
What Is Direct Public Offering (DPO)? April 16th, 2021

The guide provides information on a Direct Public Offering (DPO) – a type of offering in which a company offers its securities dir...