There is a better-than-average chance that you have heard quite a lot of talk lately about non-fungible tokens, frequently referred to as NFTs. If you're like most people, you probably have more questions than answers concerning what these terms mean and what it might mean for you if you were to get involved with it all. Fortunately, you've come to the right place. By the time you're done reading, you'll not only know what they are but also have a good overview of how they work along with some real-world examples. Who knows, you might even decide to strike out on your own and get involved. At the very least, you'll have a much clearer idea of what they are and why they might eventually be important to you.
What is a Non-Fungible Token (NFT)?
The first thing you need to know about them is that while they exist in the realm of cryptocurrency, they are not traditional cryptocurrency like Bitcoin. At the core of the matter, they exist in the digital realm. So does cryptocurrency. However, that is essentially where the comparisons must stop. This is largely because NFTs are completely unique. Each and every one of them is designed in such a manner that it cannot be replicated or duplicated in any capacity. That isn't the case with cryptocurrency. In fact, much of that is interchangeable between one or the other. When you're talking about NFTs, you are talking about something that is indeed valuable in the digital realm, but it cannot be duplicated. By the same token, it is not interchangeable with other digital assets. You might think of it in the same way that you would think of a family heirloom. It could be quite valuable and there's every chance that it's the only one of its kind. That being said, the difference between these two examples is that the family heirloom exists in the physical realm and the NFT exists in the digital world. That means that you're probably asking yourself how exactly an NFT can benefit you, especially if you've never been involved in any of these digital assets in the past.
Overview of NFTs
A few years ago, they seemed to be all the rage. At the time, they were relatively new and their market value was soaring. People ended up investing in them to the tune of several billion dollars. However, that market has since slowed down a little bit and there aren't quite as many investors as there once were. That isn't necessarily something to be alarmed about. This is typically the case with almost anything that people perceive as the next hot ticket item. Once it has a little bit of time to settle in and people realize that almost nothing legitimate is going to make them millionaires overnight, the activity typically slows down. The reality of the situation is that they are likely here to stay. As a matter of fact, they're actually more secure than traditional contracts or forms of payment. The key is knowing how to use them. It's also worth noting that they will likely play a major role in the new web3, or web 3.0. It's supposed to be the newest version of the World-Wide Web, one that is far more interactive than anything previously seen.
How Do They Work?
Did you ever collect baseball cards when you were a kid? If you did, then you have some kind of an idea of how these assets work. When a new one is created, it goes through a minting process. It is designed to represent something in the real world. That can be anything from a collectible item to a piece of real estate. When it is minted, it is directly connected through a blockchain to that particular person or item. It can never be replicated and there can only be one such asset. The fact that it has been minted and is directly connected using a blockchain without the possibility of reproduction makes it almost impossible for fraud to occur. Think of it this way. That asset exists in the digital world but if you possess one that says that you own a piece of real estate, that piece of real estate is undeniably yours. In the physical world, contracts can be forged. Identities can be stolen. People can take out loans for mortgages in your name and in some cases, they can use various nefarious tactics to cheat you out of the property you already own. If you have a digital asset that is connected to the same piece of property, it's virtually impossible to do that. That's because it is an entirely unique representation of that property or item and it clearly states that it belongs to you. It is directly connected to you through the aforementioned blockchain, meaning that it's almost impossible for someone else to come along and claim it. All of this is done when the asset is minted, meaning that it's been through a vetting process. As a result, a lot of people have made the decision to invest in them because they are essentially investing in real-world items without the fear that often comes with being cheated out of something that they paid for.
Most people who have been involved in traditional cryptocurrencies are accustomed to trading one Bitcoin for another in much the same way that you would go to a store and hand somebody a $20 bill in order to pay for $5 worth of items, fully expecting to get $15 in change. It's a little bit different when you start talking about digital assets because every single one of them is unique. As such, they cannot be traded. However, they can be purchased. Every asset is connected to something that has value in the real world. As a direct result, they can all be purchased and sold. Whether you choose to do that using cryptocurrency or tangible dollars is up to you.
Think back to the example where you have purchased a piece of real estate using a digital asset such as this. You can't simply trade that particular asset for another one because you're talking about two distinctly different assets that are worth different amounts of money. That being said, you are directly connected to that piece of real estate and you have the right to sell the asset in question if you so choose. By the same token, you can choose to buy one that another individual is willing to sell. The one thing you cannot do is simply trade them across the board, one for the other. Remember, they are not dollars. They are digital representations of real-world assets.
The real estate example has been used extensively. These digital place holders can also be used for other things. As a matter of fact, they are routinely used as digital representations of artwork or other collectibles. Imagine buying an expensive painting and wanting to know that the painting in question has been authenticated to be original. One way to accomplish that is to purchase an asset that is directly connected to it. Its entire history can be looked up in a matter of seconds and it is automatically authenticated through the vetting process that goes along with minting the digital asset itself. As a result, it has become an immensely popular way of ensuring the validity of all types of collectibles.
NFTs may still be a mystery to some. However, they are becoming more popular around the globe. In fact, there is every chance that they will one day replace traditional contracts. In the process, they are slowly changing the way people do business.