NFTs and the future of the blockchain
Why NFTs or Non-Fungible Tokens are one of the most exciting applications of blockchain technology
NFTs or Non-Fungible Tokens are digital assets that can be traded on 24/7 marketplaces similar to any other cryptocurrency. However, the quality that makes these NFTs so unique is their non-replicability, and this aspect is perhaps one of the most underappreciated use cases of blockchain technology.
When you trade one Bitcoin for another, you receive coins that are identical in value and cannot be differentiated. NFTs, on the other hand, contain characteristics such as meta-data, visuals, and serial numbers which peg the value of the NFT to a unique digital asset. It is important to note that the verification and exchange of these assets occur through smart contracts, usually on the Ethereum network.
This means that any piece of art on the internet can be pegged to a specific NFT and since that NFT cannot ever be replicated, the artwork is now verifiable as the original. Similar use cases can also be seen in the world of digital lands or trading card games such as Pokemon and Magic The Gathering. Copycats are one of the biggest hurdles in the world of collectibles and NFTs aim to fix exactly this issue.
As of now, digital art represents one of the most lucrative opportunities in the NFT space. According to Crypto Art, a website that tracks values of digital art sold through blockchain, the total market for art NFTs has already reached over $120 million, with almost 76,000 pieces of artwork sold using NFTs.
Digital land has also become popular due to the rise of NFTs. Platforms such as Earth2 and Decentraland allow users to buy land tokens named after actual places on the planet. In essence, the users don’t receive anything physical other than a token that verifies their ownership of the virtual territory. Yet, these pieces of land are now selling for thousands of dollars, with one token even having sold for over a million dollars previously.
CryptoKitties is another platform where NFTs have allowed users to own virtual cats which can be traded over a marketplace.
All of this may seem outlandish at first, but when considering the future of where we are headed, having a digital version of everything around us doesn’t seem too crazy. In fact, the internet itself can be thought of as real estate where our social media platforms represent a piece of ownership. Brands that pay influences to promote a product are in essence just paying rent to secure a space on there.
This form of advertising represents a major opportunity for NFTs. As virtual items and land become popular, it is likely that brands will either try to own some themselves or advertise on them in order to catch the attention of their potential customers.
As virtual and augmented reality become more mainstream, some of these platforms are even planning on creating digital versions of your items that you can interact with on the VR/AR devices.
On one hand, the rise in popularity of NFTs may just signal the increasing risk appetite of retail investors who are now looking into virtual non-existent items as a store of value. However, much like Bitcoin, NFTs are unlikely to gain any real traction only through the support of retail investors.
The real challenge for NFTs will be finding a place in the portfolio of institutional investors. Venture capital firms such as Andreesen Horowitz are already paying close attention to these tokens, and more recently, famous investors such as Chamath Palihapitiya and Mark Cuban have both voiced their backing of Non-Fungible Tokens.
Regardless of the investment opportunity, NFTs represent a really unique use-case of a technology that is still in its infancy today. All the possibilities of blockchain are yet to be seen.