Non-fungible tokens, or NFTs, are digital assets that are indivisible and provably unique. They can be used to represent both tangible and intangible items.
Cryptocurrencies, utility tokens, security tokens, privacy tokens… digital assets and their classifications are multiplying and evolving right alongside cryptographic and blockchain technology.
Non-fungible tokens (NFTs) are another example of the fast-paced change in the industry. In this guide, you will learn what they are, how they work, and how they’re being used.
What are non-fungible tokens?
Non-fungible tokens are digital assets that contain identifying information recorded in smart contracts.
It’s this information that makes each NFT unique, and as such, they cannot be directly replaced by another token. They cannot be swapped like for like, as no two NFTs are alike. Banknotes, in contrast, can be simply exchanged one for another; if they hold the same value, there is no difference to the holder between, say, one dollar bill and another.
Bantu (xbn) is a fungible token. You can send someone one xbn and they can send one back, and you still have one xbn. (Of course, the value of xbn might change during the time of exchange.) You can also send or receive smaller amounts of one xbn, measured in spirits (think of spirits as cents of a xbn), since fungible tokens are divisible.
Non-fungible tokens are not divisible, in the same way that you cannot send someone part of a concert ticket. Part of a concert ticket wouldn’t be worth anything on its own and would not be redeemable.
Did you know?
In late 2018, one player was so desperate to move to a “better location” in the virtual game Decentraland that they were ready to say goodbye to 2,800,000 MANA in order to purchase a land piece in-game. At the time of the deal, that was equivalent to over $215,200.
Why do NFTs have value?
As we’ve mentioned already, a non-fungible token is essentially a certificate of ownership for a digital asset. The value comes from the collectibility of that asset, as well as its potential future sale value. NFTs can be sold and traded.
Again, using art is a great example of the value of NFTs. In February 2021, digital artist Beeple sold the NFT for their Everydays – The First 5000 Days artwork for a staggering $69.3 million through Christie’s auction house.
Examples of NFT sales
It’s not just NFT art that sells well. There have been several notable sales of NFTs in recent months, although this has given rise to the speculation that there is a market bubble at the moment.
Some examples of NFT sales include:
- The first Tweet. Jack Dorsey, the founder of Twitter, sold the NFT for his first Tweet for $2.9 million
- The ‘Nyan Cat’ GIF. The NFT for the colourful GIF sold for 300 Ether (a cryptocurrency), worth around $561,000 at the time.
- The ‘Charlie Bit Me’ Video. The popular video of a baby biting his brother’s finger was viewed over 800 million times on YouTube. The NFT for the video sold for around £500,000.
What can non-fungible tokens be used for?
Many people question whether there are use cases for NFTs. However, although the concept is in its infancy, several potential uses have already emerged. Below are some of the most notable ones:
One of the uses of NFTs is that of event tickets. The argument is that if tickets are created using a non-fungible token, if you make an exchange of that ticket, there is a record of that exchange.
As a result, there is no chance of someone scalping tickets, stealing tickets, or trying to use counterfeit tickets. This is because there is no chance of replacing the token on a blockchain associated with that ticket.
A couple of major issues in the fashion industry could be addressed through the use of NFTs. To start with, having a digital record of authenticity helps with issues such as counterfeit goods. Luxury items could have an attached NFT that would show it’s genuine.
Similarly, a non-fungible token could show crucial data about the origins of an item, such as the materials used, where they were sourced from, and how far the item has travelled. As issues around fashion and sustainability become more pressing, this could help people make more ethical decisions.
when exploring the huge market value related to gaming. NFTs provide gamers with a way of owning unique in-game items. Whether for fun, authenticity or in a competitive nature, such tokens can power in-game ecosystems.
How to create an NFT
If you’re a budding digital artist, you might be interested in creating NFTs for your work. Luckily, there are several platforms available that can help you get started. On the whole, the process is fairly simple, and the various platforms will guide you through the process.
However, there are a few things you’ll need to know before you’ll get started:
- NFTs are based on and supported by a particular blockchain. The most popular one for non-fungible tokens is currently the Ethereum blockchain.
- You’ll need to have a cryptocurrency wallet, complete with cryptocurrency. The most widely used one is currently ether (ETH).
- You can create and sell your digital assets on an NFT marketplace. The OpenSea platform is a popular, Ethereum-based platform.
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pros and cons of NFTs
So, non-fungible tokens are clearly popular right now. But what are the positives and negatives of NFTs? Below are some potential pros and cons:
Pros of NFTs
Some of the advantages of NFTs that are often stated include:
- They give artists ownership over digital assets. When content creators create a digital asset, an NFT gives them the chance to not only show authenticity but to then profit from their work. With things like memes that are widely circulated, this could mean a significant income stream for the creator.
- They’re unique and collectable. Many people enjoy the excitement that comes with collecting something that’s unique or rare. NFTs provide an extra layer of legitimacy to collectable content, particularly in the form of digital assets.
- They’re immutable. Because non-fungible tokens are blockchain-based, they can never be altered, erased, or replaced. Again, when proving the origin or authenticity of digital content, this is a valuable quality.
- They can include smart contracts. Smart contracts are another feature of blockchain technology that are quite intriguing. Essentially, they can store instructions that are executed when certain conditions are met. As such, an NFT with a smart contract could give artists a percentage of the profit when the NFT is sold in future.
Cons of NFTs
Of course, as with every new technology, there are some potential downsides. The disadvantages of NFTs include:
- It’s a speculative market. The big question remains as to whether there’s any true value in NFTs. Are they a long-term investment? Or simply a passing fad? It’s hard to tell. Currently, the only value is based on the emotive quality of NFTs.
- Digital assets can be copied. Just because someone owns the NFT of a digital asset doesn’t mean that copies of it don’t exist. Art can be copied and pasted, GIFs reposted thousands of times, and videos posted on various websites. Just because you own the NFT doesn’t mean you control the asset – you simply have a token of authenticity.
- Environmental costs. A lot has been said about the environmental impacts of blockchain-based cryptocurrencies such as Ether and Bitcoin. It takes a lot of computing power to enter records onto a blockchain. There is a big question as to whether assets based on blockchain are sustainable.
- They can be stolen. Although the technology behind NFTs is relatively secure, many of the exchanges and platforms aren’t. As such, there have been several reports of stolen NFTs after cyber security breaches.
Are non-fungible tokens the future?
Hopefully, you now have an understanding of what NFTs are and how they work. We’ve seen that there are several potential applications for non-fungible tokens in the real world, but are they a technology of the future?
It’s hard to say whether NFTs will be widely used over the years to come. Clearly, there is a huge interest in them at the moment, as well as several potential benefits. However, the technology is in its relative infancy, and there are numerous challenges to overcome.
If you’re interested in learning more about NFTs and blockchain technology, understanding the key principles could benefit your career. Whether they’re the future or not, NFTs are a fascinating part of popular culture.