NFT (non-fungible token) is a type of digital certificate established via Blockchain that grants originality and exclusivity to digital goods. This technology can be used in digital asset transactions, including videos, music, games, and collectibles. However, it’s the digital art world that is being taken by storm by crypto collectibles.
An NFT, when attached to a digital item (be it an image, a photo, videos, music, a message, a social media post, etc…), makes the item unique to the market. This, in turn, generates scarcity and opens up space for a new market, where investors are interested in investing in and acquiring digital works and assets.
To understand NFTs and their applications, we must first clarify what is and what is not fungible. In economics, fungible goods are those that are not unique and are interchangeable: a US$ 1 coin is a fungible good because if you exchange it for another, you still have a US$ 1.
A world-famous work of art: it is unique and is coveted by collectors and museums around the planet. If you own this work of art and exchange it for another, the result of the operation is no longer equivalent as was the case when you exchanged a US$ 1 coin. Works of art are, therefore, examples of non-fungible goods: by exchanging one for the other, you end up with a different result. What you end up with is not equal to what you had at your initial position since the new painting will never be equal to the work for which you exchanged it.
This is the concept behind NFTs: they are a type of digital signature that transforms any variety of digital media (gif, jpeg, photos, videos, messages, audio files, etc) into a non-fungible good.
A single common digital file may be swimming in an ocean of identical copies online. Still, if that item is coupled with an NFT, it will be the only one that has a certificate of originality. This creates scarcity around the specific item. NFTs are a type of digital certification, valid because they are verified by the Blockchain. This may transform digital media into originals when compared to ordinary copies.
Currently, the most common example of NFT is the ERC-721 standard, which operates on the Ethereum network, but there are other standards, such as ERC-20, ERC-1155, ERC-233, ERC-621, ERC-827, among others.
This technology’s key benefit is the assurance of authenticity it provides, without the need for extra expenses or a Regulatory Authority. However, the benefits of using NFTs go even beyond.
One example is how simple acquiring and selling items can be. In the traditional model, if you buy a frame in Italy, you would need to hire a specialized carrier to bring it safely to you, and then arrange all the importation documentation and still pay fees to the IRS. With NFT, all this is simplified. All that is needed is the establishment of a direct agreement between buyer and seller.
Another advantage for artists is that they can choose to automatically add royalties to digital contracts they entered into when selling the assets. That means that even if the token is later resold, even several times, the artist will continue to receive a part of the money forever.
In the future, NFTs will open the doors to the digitization of all existing intellectual property rights. More than that, they can bring sources of extra income to other segments of the market.
The NFTs world is in its early stages, but there is a long road ahead. Those on the inside now are in an advantaged position in this promising market.
A Brief History of NFTs: Know More
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The Video That Will Get You To Start your NFT journey: Start Watching
Article and Research | Marcus Ferreira Translation and Review | Carolina Martins