Non-fungible tokens or NFTs are a recognition of ownership of digital assets. These assets can range from music to videos and any other kind of media. While they can be bought and sold like fungible tokens, like cryptocurrencies, they are not interchangeable like them. They are unique assets, but similar to fungible tokens in that they are also verified on the blockchain network.
They have become popular in recent years as interest in digital asset ownership has risen. They represent not just a new technology enabling trading in assets, but they have also opened up the path to ownership beyond just digital art, including sports collectibles and virtual real estate, as examples.
Origins of NFTs
The first ever NFT was created in 2014, which goes by the name Quantum. The code-driven work of art was a representation of the cycle of birth, death and rebirth. But it was not until the launch of CryptoKitties, a blockchain-based game released in 2017 that allowed trade in unique digital cats as NFTs, that these assets took off. Along with the popular CryptoPunks, which is a set of 10,000-pixel art images of humans with unique attributes, NFTs finally began to find their footing.
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As these assets were launched on Ethereum Blockchain, they had an advantage over the technology used until then. The smart contracts functionality provided by this Ethereum allowed for end-to-end creation to sale into the blockchain.
Why NFTs’ popularity is rising
The pandemic accelerated the development of the NFT market, as many of us were pushed to explore the digital world more. When Beeple’s NFT sold through Christie’s, a well-known auction house for more than USD 69 million, the asset class was finally on the map. There are now regular NFT drops, that allow pre-announcements of the latest projects.
With the increasing popularity of blockchain and rising digitalisation in the world as such, the growth of NFTs was likely inevitable. The technology allows unique identification, providing digital creators with a safe way to sell their assets. In fact, blockchain also supports in retaining the uniqueness of these creations.
Even buyers are more comfortable owning digital art now, further adding to the popularity of NFTs. Especially since they are being increasingly endorsed by famous people. Elon Musk, the headline-making CEO of Tesla, tweeted about an electronic music track he produced as an NFT in 2021, though he later changed his mind. Mark Cuban, the investor of the Shark Tank fame, is also known to have invested in NFT companies. Lead guitarist and vocalist of the rock music band Grateful Dead also sold some of his digital artworks as NFTs.
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With popular brands like Coca-Cola and Taco Bell creating NFTs around their projects, this asset class is ever closer to becoming a household name. Interestingly enough, even luxury brands like Gucci are creating NFT collections priced even higher than their products.
Secure new asset class
The highlight of the NFT market is the security from being backed by blockchain making them unique assets, that cannot be replicated. It also makes their authenticity easier to verify. Further, while it is true that some NFTs have been auctioned at major houses, it is not a requirement. Typically, NFT trades are made over decentralised exchanges. This means that there are lower fees associated with these trades, making them investment options to consider.
Moreover, they are attractive to investors as a new asset class. If they get on to it early enough, like many cryptocurrency investors did, they could hope to earn good returns over time. It helps that some digital art has already sold for huge sums of money. Another attractive aspect of NFTs is the range of options provided. If an investor wants to buy virtual real estate, they can just get an NFT for that. Similarly, if music is a feature of interest, there are NFTs available there too.
What’s next for NFTs
They also serve as what has been called the “purest form of freedom of speech on the internet” by Forbes magazine. NFTs cannot be censored and no institution can restrict blockchain. But perhaps the most exciting aspect of NFTs is that it is still a nascent market. It has a long way to go. As the world gets ever more digital, they might just boom over time. Early signs certainly point in the direction, as some NFTs have been sold for millions already. The adoption of blockchain for NFTs has been a huge support in promoting their uniqueness.
As has their recognition by some of the best known faces of the business world. As the world becomes more comfortable being digital, the endorsement of NFTs can continue to grow. Moreover, they are not just collectibles, they are legitimate investment opportunities, that can attract investors in increasing numbers over time.