Understanding the NFT Ecosystem

The NFT has become one active and popular system of acquiring digital assets in recent times.

And even more, because of the involvement of Elon Musk and Grimes, the NFT ecosystem has attracted people  investing their time and resources to acquire NFTs. 

So, what if you are hearing about an NFT for the first time? Having a basic understanding of NFTs will help clear up any potential confusion with this new trend.  Let’s dive into the NFTs and help you understand how they work and some of the underlying details behind it.

What is an NFT?

NFT is an acronym for non-fungible tokens.

Non-fungible tokens are digital assets that are special and non-replaceable. Similar to cryptocurrency, another asset cannot take its place due to its uniqueness. This is what prevents it from being substituted or replaced with a similar or replica item.

Non-fungible tokens can be a physical and tangible item, or a digital and in-tangible property. Examples of non-fungible tokens are paintings, a house, a video game scheme, a trademark, or crypto kitties.  The fad of crypto kitties was the first real instance of NFTs and utilized the Ethereum blockchain in 2017.

To understand it better, let’s compare non-fungible tokens with fungible tokens.

Fungible tokens are assets that can be substituted for another. They include the dollar, gold, bitcoin, ethereum, etc. They might be different but hold the same value.  This means if you have bitcoin but you need dollars, you can exchange your bitcoin for the same value in dollars.

But for NFT, it is different. You can’t exchange it for another asset. Once you acquire it, it becomes your property. No copies or duplicates. No other person can own that same thing you own and that is why they are special.

Businesses accepting credit cards or a crypto payment processor transferring money are engaged in fungible assets. These can be exchanged for other asset classes with relative ease. This is why fungible assets are popular and more widely used than NFTs.  Non-fungible tokens are rare, expensive, and not very common in the world, but the right item at the right place, they can be worth millions of dollars.

NFTs are digital assets, publicly verifiable, intellectual properties, or authenticated on a blockchain. A popular place you can browse a variety of NFTs is on opensea.io.  The available NFT’s include digital art, virtual land, gaming, collectibles, finance, and much more.

How does NFT work?

NFT are reserved in a blockchain file as a cryptocurrency called Ethereum, just like cryptocurrencies.

NFT uses information with verified cryptographically to seal and protect the specific asset or even collections of a different asset like paintings, theatre tickets, or trademarks.

Think of an NFT as if you took an original image and digitized it into a video game, padlocked the cartridge and auctioning it off at Christie’s.

In 2021, even one of the most prolific aution houses, Christies, entered into the NFT economy by selling a purely digital piece – an NFT developed by Mike Winkelman, aka, Beeple.

Some artists might make a  number of copies or versions of art, but through NFT’s, the pieces are guaranteed to be unique. These tokens generated are one of their kind.

With a basic knowledge of NFT’s, lets touch upon the meaning of tokenization.

What Is Tokenization?

Tokenization is the process of transforming delicate data into non-delicate data called “tokens” that can be used in a database or internal system without bringing it into a spectrum.

Tokenization can be used to safeguard delicate data by replacing the original data with an independent quality of the same quantity and layout. The token generated is later sent to an organization’s internal system to function there, while the real data is stored in a protected token crypt.

Different from encrypted data, you cannot decipher or reverse tokenized data.  This difference is very important: Because there is no precise connection between the token and its primary number, tokens cannot be reversed to their actual structure.  This is the premise of why cryptocurrency merchant services is so secure and becoming so popular for online transactions.

So what is a token?

Tokens are digital certificates stored on a secured distributed database called a blockchain.

Benefits of NFTs

People are investing a chunk of their time in NFT with the hopes of creating significant future values. Remember what bitcoin was in 2010, then compare it to now. They understand how these things work and now NFTs are rising and gaining value by leaps and bounds. Some of the most common benefits of NFT include:

  • Ability to own an asset that is unique only to you. No one else can have that same asset.
  • You have the sole rights over the assets, and for any reason someone might chose to use it, it will always remains yours.
  • It’s an avenue to put important assets on a public blockchain with absolute certainty that it will remain safe and secured.
  • the non-fungible token allows you to outline adequate features or attributes that make them special – aside from the name, balance, token supply, and symbol. This is because you could add sufficient metadata about an asset and information about ownership. These well-outlined attributes of an asset can add value to the asset because investors will be confident about its source of origin.

Despite the unique benefits of NFT’s, there are some downsides.

Disadvantages of NFTs

  • Even as popular as NFT, it has not been adopted as quickly as most supporters had expected, this is because the ERC-721 procedure for creating NFT’s is still being understood.
  • The process of developing decentralized applications for non-fungible tokens can be complicated and time-consuming due to the learning curve.

In Conclusion

NFTs are the future of digital asset investment.  Some might not see the value in this asset now, but a closer look can offer investors a way to use NFTs  to help create wealth in the future.  Similar to cryptocurrency, non-fungible tokens have the potential to continue to grow in the coming years.

Owning a unique asset that no one else has is a great thing to behold. And if you decide to sell, it might be valuable enough to sell for much more than your wildest expectations. So what NFT do you think is worth acquiring?

Categories: Crypto

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April 19, 2021 Understanding the NFT Ecosystem