For most people- at least those outside the NFT community- the idea of NFT is digital art. It is attaching a hefty sum to pixels that can be generated by someone else and giving the rights of ownership to whoever buys the pictures.
But- anything can be an NFT. From art, drawings, music, memes, tweets, and domain names to brain waves. Whatever is unique and can be stored digitally qualifies as NFT material.
In December 2020, Jack Dorsey created a non-fungible token (NFT) from his first-ever Twitter post. Crypto entrepreneur Sina Estavi purchased the five-word tweet for $2.9 million in 2021.
What Alex Ramire-Mallis and his friends thought was a better way of coping with the lockdown- recording their farts and sending them to each other- was compiled and turned into an NFT. The 52-minute fart symphony got a bid of $85 for each fart recording.
While this might sound crazy, having a digital file of something that cannot be replicated, exchanged, or copyrighted is the best part of non-fungible tokens (NFTs).
NFTs and Asset Tokenization
The idea of tokenization is taking virtual or physical assets and turning them into “digital units” that can be bought, exchanged, and sold. It removes the financial intermediaries and barriers and opens the asset market to small-time investors.
Companies are beginning to see tokenization as the next step to creating more accessible markets and boosting sales by allowing individuals to engage in “fractional ownership.”
An investor can own a portion of an asset within their financial capability instead of missing out on opportunities due to a lack of funds to purchase an entire unit.
How Does a NFT Work?
NFT takes tokenization a little bit further and adds the feature of non-fungibility. While fungible tokens can be swapped for another token or a close alternative, non-fungible tokens have a special element known as -unique identifiers.
The uniqueness of a non-fungible token means it is not mutually exchangeable, even with an asset of the same characteristics. NFTs exist on a blockchain and are cryptographically secure, limiting the possibility of being copied or substituted.
As explained earlier, NFTs represent tangible and intangible items, from art and collectibles to memes, tweets, and in-game items.
Usually, a creator launches a single NFT or a collection. For a single NFT, bids are placed, and the highest bidder gets the asset. In the case of a collection, the whitelisting process is conducted before minting takes place.
NFT whitelisting is the process of getting a crypto wallet address pre-approved for minting. Having a list helps buyers avoid exorbitant secondary prices and hefty transaction fees. The buyers shortlisted are granted access to the mint and then conferred ownership of the NFTs.
What are NFTs Used For?
The art industry has benefited the most from NFTs. With the help of their communities, new artists and content creators have found a way to monetize their creations and reach broader demographics.
Instead of waiting for galleries to showcase their art and depending on the viewers to take an interest, they now have access to thousands of people, and sales happen quicker than it takes to auction off an art piece.
NFTs are also used to raise awareness and funds for charity. Many charities and countries in need have benefited from the NFT rage through competent ambassadors and willing communities.
NFTs help to preserve memories; keep them frozen in time better than a photograph would. You don’t need to sell an NFT if it’s created to remind you of a time you don’t want to forget. Stonses, a Dubai-based company, introduced a system to help individuals preserve the memory of loved ones, using NFT technology as a leverage.
Additionally, NFTs are used for financial gain by investors. Many NFT holders buy non-fungible tokens when the prices are low and sell for higher when the market becomes favorable. This method is known as NFT flipping- buying low and selling high.
The value of an NFT depends on what an investor is willing to pay for it. A creator might list a non-fungible token and get less than the asking price.
As a result, demand influenced by factors that might not be universal drives the price of an NFT or an NFT collection. It also means that after buying an NFT, it might be harder to sell if no one sees the same value as you saw when you purchased it.
With all its perks, the NFT industry can be tricky for creators and risky for investors.
Meta Data: Tokenization is taking tangible and non-tangible assets and turning them into digital files that can be bought or sold. NFT takes it a step further, providing unique identifiers that prevent the assets from being substituted.