What Are Non Fungible Tokens (NFT Tokens)?
In recent weeks, the focus of the cryptocurrency markets has mainly been on the Decentralized Finance – or DeFi space and decentralized exchanges. Consider, for example, the popular Uniswap and the dizzying rise of Polkadot based on market cap .
The next hype is not yet over and the next one is already flying around us. Welcome NFT, or Non Fungible Tokens and translated in Dutch to ‘Non Replaceable Token’.
What are Non Fungible Tokens (NFTs)
NFTs are one of the key building blocks of a new blockchain-powered digital economy. Several projects are experimenting with NFTs for different use cases, such as gaming, digital identity verification, licensing, certificates and fine arts.
An NFT is a cryptographic token on a blockchain that represents a unique asset. These can be fully digital assets or tokenized versions of real-world assets. Since NFTs are not interchangeable, they can serve as proof of authenticity and ownership within the digital world.
But how can such things have value? As with any other valuable item, the value is not inherent in the object itself, but is assigned by people who deem it valuable. Value is essentially a shared belief. It doesn’t matter if it’s fiat money, precious metals or a vehicle – these things have value because people think they have.
This is how every valuable item becomes valuable, so why not digital collectibles?
While virtual worlds are already thriving, another exciting use of NFTs is the tokenization of real-world assets. These NFTs can represent fractions of real assets that can be stored and traded as tokens on a blockchain.
This could introduce some much-needed liquidity to many markets that otherwise wouldn’t have much, such as fine art, real estate, rare collectibles and much more.
Also interesting: What is the metaverse?
Projects already using NFTs
Many different projects already use NFTs as collectibles and trade items. Examples include Decentraland (decentralized virtual reality world where players can own and exchange bits of virtual land and other in-game NFT items), My Crypto Heroes, and Gods Unchained.
Digital collectibles open up blockchain technology to entirely new avenues, beyond conventional financial applications.
By representing physical assets in the digital world, NFTs have the potential to be an essential part of not only the blockchain ecosystem, but the wider economy as well.
The use cases are huge, and it is quite likely that many developers will come up with new and exciting innovations for this promising technology.