Non-fungible tokens, or NFTs, are an innovation that builds on the previous work done by blockchains. You may or may not have heard about them since they're only just starting to come to prominence in popular culture. Coindesk reports that token app Fyooz gives users a chance to play beer pong with artist Post Malone, using NFTs for the league they established. Most of the mainstream media hasn't picked up on how useful these tokens are, but collectors realize that they may be the perfect way to authenticate whether you're getting something genuine.
Digital assets are not a new thing to our society. Businesses have been making digital app purchases possible for several years at this point. Many games operate on a microtransaction process that focuses on selling digital goods. However, for collectors, the problem exists when you want a particular item that should be unique. Most digital goods are simply copies of code distributed to several users. This process relies on a single blueprint, with each copy being made from that blueprint. For a collector, there's no guarantee whether they own an original item or a copy of that item. Until the development of NFTs, there was no way to distinguish between a digital thing and its reproduction.
Live Mint tells us that non-fungible tokens are unique representations of digital assets. The best way to explain this is to compare them to fungible tokens. When something is fungible, it means that it can be used interchangeably.
For example, a single ETH token could be replaced by another ETH token worth the same value. The particular token being used doesn't matter to the value of the coin. However, some things need to be non-fungible.
One of the most prominent examples in the real world is artwork. An original Van Gogh painting can sell for millions, while you can buy a reproduction knock-off on Amazon for twenty bucks. These items are non-fungible since there is a distinct difference between the original and the reproduction, to the tune of several million dollars.
NFTs introduce the idea of non-fungibles to the realm of digital assets. Thanks to NFTs, when a collector gets something, they can now state that they have this particular asset verifiable by examining the blockchain. The closest real-world analog you can find is the use of serial numbers. A single serial number will only ever represent a particular item. So too, a specific NFT will only reference a single digital asset.
Collectibles have always been a lucrative market. Speculators buy up what they think could be worth a lot later on and sit on them, then when the time (and price) is right, resell it for a markup.
We've seen this happen to everything from trading cards to antique books. IGN reports that one of Magic: The Gathering's most storied cards, the Black Lotus, was sold at auction for more than $500,000 on eBay, destroying the previous record also set by a Black Lotus. For something to command a price this high, it must be scarce and have a demand. NFTs deal with more than just uniqueness - they deal with scarcity.
Most economics majors can drone on and on about supply and demand curves, but their information helps us understand how NFTs ensure a collectors' market can exist. NFTs make it possible to create digital scarcity - something that has never before existed. When something is scarce, the value of that commodity goes up.
Additionally, an NFT makes goods tradeable, and there's a chance that, through trading, the value of the asset goes up. Since these NFTs are registered to a blockchain, it introduces another element that collectors may be interested in - previous ownership. The value of an asset may go up simply because it was previously owned by someone famous.
Marketers can use NFTs in two distinct ways to enhance their current efforts. Firstly, NFTs allow for better monetization. Currently, platforms are how creators get paid for their content, but this could change significantly because of NFTs. Instead of using Facebook or YouTube to put out content, a marketer could instead directly transmit it to their users, who get access through a particular NFT. The customer pays for the NFT for a subscription period. At the end of that period, it expires along with their ability to access that content. Companies like DesignBro sell logos and design elements that allow users to access content created specifically for them, linked to an NFT.
Secondly, NFTs introduce a way to tokenize services and experiences. The thing that immediately comes to mind is performers and artists. Already, thanks to lockdowns around the world, digital and remote concerts have become more common. Yet, these artists still have to go through a middle-man to sell tickets. NFTs remove the middle man, allowing artists and performers to market to their fans directly. Fans get access to the concert through the NFT, which then expires and can't be used again.
For now, NFTs may seem as though they're the fringes of technology, but a lot of celebrities are getting used to the idea. It might not be too long before we start seeing more brands following their example, using NFTs to get more revenue and hold onto their intellectual property. While it's not the most intuitive use of a blockchain, it's so far one of the most innovative ones.
Create your free account to unlock your custom reading experience.