How do NFTs work?
When someone says NFT, what they really mean is a Non-fungible token, the authenticity of which as well as ownership over is achieved through the use of tokenizing a virtual or physical asset using Blockchain technology. NFTs are part of the cryptocurrency world, but the non-fungible part is what makes them distinctly different from crypto’s.
Fungibility is a term that refers to an asset that can be interchanged with assets of the same type. For example, one Bitcoin is always tradable for another one. The same thing goes for fiat currencies like the dollar or euro. But, this is not the case for NFTs, where each and every single one represents something unique and with distinct value.
Before their popularization, it was nearly impossible to create and validate digital scarcity for virtual and physical items. For the past three to four years, the lion's share of NFT activity revolved around digital art, virtual items, and collectibles. But, with the advancement of technology, fresh ideas, and general growth of the ecosystem, things won't stop there!
How can you use NFTs as an artist?
The tokenization of digital art is one of the most common NFT use cases across the entire market. The unique blend of creativity and technology that NFTs provide has opened up an entirely new way for artists to monetize their work that was previously impossible.
One of the most beautiful things about NFT technology is that literally, anyone can make an NFT. So, if you’re an artist, you can tokenize any of your artwork using one of the various NFT marketplaces and sell it. What's more, is that you can program your NFT to also provide you with royalties on every resale.
The ability to prove ownership over a digital item prior to the emergence and popularization of NFTs was a near-impossible endeavor. But they have helped solve long-standing digital art scarcity issues and laid the foundation for a new way in which the art industry can operate.
But if you do decide to sell your art as an NFT, then you definitely need to be aware of some of the tax implications that come with that.
What are the use cases of NFTs in other sectors?
The NFT market is still rather young, however, there are already many interesting use cases that we can explore and industries that can be disrupted to provide greater value for content creators, businesses, and consumers. If you’d like to read about some established NFT projects then you may do so here.
Standing second in popularity to digital art NFTS is the gaming world. Did you know that nearly all video games are centralized? This affects gamer accounts, items, in-game gold, and virtual property. These things have value. NFTs are changing that by providing the ability to tokenize in-game items, making them decentralized, ownable, and therefore have value. Which is also affected by the unique characteristics of the rarity of a specific gaming NFT.
Gaming can see completely new streams of monetization of things like the individual time of an advanced player in-game, solving various tasks, and in-game assistance thanks to NFTs. There are now entire games being built around this technology. It’s likely that in-game items, cosmetics, and valuables will remain a primary gaming use case for NFTs for some time though.
NFTs can help solve the problem of content piracy, which has been a burden on the music industry ever since things started going digital. How many people are out there that have produced music that spread like wildfire while they got only a few grains of the financial reward they should have? Be it due to middlemen like managers and studios?
Combining NFTs with Music is an excellent use case as this allows music artists to easily sell their work directly to fans and retain all of the royalties.
NFTs help solve a huge ownership transferability issue for the real estate industry. Prior to their advent, the process of transferring a deed on ownership or reselling a piece of real estate involved a megaton of bureaucratic paper processes that we’re expensive and labor-intensive. Creating tokenized digital and blockchain authenticated versions of certificates, deeds, legal paperwork pertaining to ownership and rights is a huge step towards streamlining the industry.
Things can be taken a step further if combined with another crypto by-product known as DeFi. Imagine being the owner of an NFT representing a valuable property and having the ability to instantly collateralize it for an investment purpose loan? The mountain of real world bureaucracy that's removed with this is really something.
Everyone has a hobby, and for some, that's collecting rare stamps, comic books, physical and virtual cards, and whatever other individually unique things. NFTs let you immortalize things that can be collectibles on the blockchain. You can create an NFT collection out of a series of one of a kind comic books and then destroy the physical copies. Their original value is retained in digital form. The possibilities here are limited truly only by one's imagination.
Thoughts about the future of NFTs
New use cases and developments on the NFT frontier are going to keep coming and coming. What’s already been achieved in terms of digital content creators and collectors is a huge and impressive win. Especially considering that the technology is around seven years old. We’re definitely going to see some practical and not-so-practical applications of the tech as the industry matures.
I’m sure that NFTs will play a critical role in the tokenization of offline objects, data, finance, and the transferability of ownership rights for real world objects and processes. The diversity of what NFTs can be used to represent will inadvertently invite intensified regulatory attention of regulators to the market, who will have to provide coherent frameworks for the technology.