What does the F in NFT stand for?
Before understanding what NFTs are or how they work, it is important to understand the concept of “fungibility”. In short, fungibility means that an asset can be exchanged with other assets of the same type. An asset is fungible when the value of one unit is equal to another unit. To give an example of assets which meet this standard of fungibility, one can observe currency assets. As one example, one US dollar is equal and exchangeable for another US dollar, therefore these assets are fungible. This concept of fungibility also applies for cryptocurrencies, such as Bitcoin and Ethereum
In the opposite case of non-fungibility, assets cannot be equally exchanged with other assets of the same type, despite potentially appearing similar. An example of a non-fungible asset would be that of a house. Houses belong to the same type of asset, but one person’s house is not interchangeable with another’s. This is not like the previous example of fungible US dollars, which are equally exchangeable for each other.
With this in mind, one can dive into NFTs, their value, and potential use cases
So What is an NFT?
With the idea of fungibility more clear, it is time to understand what an NFT is. NFT is an acronym for non-fungible token. This implies that these tokens are not fungible in the way that traditional cryptocurrencies are. However, non-fungible tokens are assets which exist and are verifiable on the blockchain. Unlike traditional cryptocurrencies, NFTs have inherently different properties which give each one unique value, regardless of whether they are a similar type of asset.
This is much like the aforementioned example of houses, which have unique value based on properties inherent to the asset. In the case of a house, these properties may be age of the building, materials used, layout, features, and more. In the case of a NFT, the inherent properties are very limited all the way to very broad. for example the number of total mint of the asset(s), redeemability for real-world assets, rarity, and much more.
NFTs are the buzz-word of 2020 and 2021 and have exploded in value over the past few months. So, you may be wondering, what are the use cases of NFTs? Are they all just useless art, or is there something more to them?
Use Cases of NFTs
Non-fungible tokens are already well known for a few particular use cases. For example, Cryptopunks and Cryptokitties are two of the oldest and most well-known NFT projects on the blockchain. In addition, NFTs are gaining a reputation due to numerous high value purchases of seemingly useless artwork and copycats of Cryptopunk-style collectibles. However, is that all there is to NFTs?
In reality there are many experienced cryptocurrency players taking advantage of the hype and speculation around NFTs. However there are actually many practical use cases for non-fungible tokens as well. Many innovators are growing the understanding of where and how these tokens can be used in a multitude of scenarios. Below are some examples of how NFTs can extend far beyond artwork and trendy collectibles:
Verification of Information and the creation of digital identities as NFTs
As societies continue to digitalize, it is becoming increasingly important to be able to verify documentation and ensure that individuals are genuinely who they saying are. This also applies to assets as well. Non-fungible tokens can be used to address these challenges. As an example, owners of real-world assets, such as a house or a car, could also be issued deeds not only in paper but on the blockchain as NFTs. As these are verifiable on the blockchain, one could more easily verify that they are the true owner of said assets.
This would also make it more difficult for stolen assets to be sold onwards. Another example, in the case of individuals, is that of stateless people, who are not citizens of any country. Some blockchain innovators have begun to explore how NFTs and the blockchain can be used to issue stateless people with digital, verifiable identities which are not controlled by a nation, but rather by the individual themselves.
NFTs for Ticketing systems and Music
Another unique use-case for NFTs is that of ticketing and the music industry. Have you every been to a concert, or flown on a plane, and needed to cancel at the last minute without wanting to lose all your money? Have middlemen or demand ever driven prices up so high that you cannot afford to take part? These challenges can be alleviated with the issuance of ticket NFTs, which are inherently unique to each purchaser. These tickets are also easily exchanged between individuals, cutting down on the dominance of middle-men in the ticketing sector driving up prices.
In addition to this, music industry professionals are moving towards issuing albums as non-fungible tokens on the blockchain. By doing so, they can earn 100% of the proceeds of the sale of their albums, rather than only earning royalties issued by large record labels. Owners of the albums are also able to trade and exchange their music NFTs around the world freely and easily on the blockchain
Blockchain Games and NFTs
One other interesting use-cases for NFTs which has been exploding in value recently is that of blockchain games. Unlike traditional video games, blockchain games allow players to own in-game assets as NFTs which can be traded, bought, and sold. Depending on the game, this gives players a more unique approach to gaming. These game-based NFTs can be anything from cosmetic items, to trading cards, in-game assets and more. The NFTs themselves can be the main object of play. The advent of NFTs in the gaming universe has led to the creation of the “Play to earn” gaming model*. This is where gamers work to acquire game NFTs and in-game currencies which can be used either to their benefit in-game experience or traded onwards for users to earn from their input.
*For a more in depth analysis, check our our Understanding Play to Earn article!
Regardless of the hype, NFTs are likely here to stay, whether you understand them or not. Their ability to create a new type of asset which has value and can be utilized in a variety of contexts is not going to go away. However, it is important to note that much of the value of NFTs can be highly speculative. Those looking to NFTs as a means to become rich should be highly cautious when getting involved. Should you want to learn more about NFTs blockchain games, and other use cases for blockchain technology, follow the Snorfkingdom Gazette for periodic updates. Thanks for reading!