Non-Fungible Tokens (NFTs): What Are Their Purposes and Functionalities?
A description of Non-Fungible Tokens
A non-fungible token (NFT), by definition, is a unique token that cannot be replaced with anything else. However, its essence is more nuanced than that simple definition. An NFT is a non-interchangeable unit of data or asset that can be found and be used to represent various forms, such as but not limited to, photos, videos and other digital files. They have no tangible form of their own, meaning they have unique properties that make them impossible to interchange.
What can be a Non-Fungible Token?
As stated above, non-fungible tokens can be represented by essentially anything of some sort of value. Physical artworks, trading cards and other collectibles are not easily duplicated because of their originality. The digital assets in non-fungible tokens can be that same tangible artwork that is one of a kind in the real world, but it goes through a process of “tokenization” by which a digital certificate of ownership of that asset is created for the user or individual that has created the NFT.
An example of a popular asset becoming an NFT is Nyan Cat, a Youtube video of a cat flying in the air leaving a rainbow trail behind it uploaded in 2011 that has garnered almost 200 million views. The artist behind the video has put it up for auction through the crypto art platform Foundation in February 2021, selling the asset for over $500,000. The buyer of the artwork will be the only one able to display it in a forum or for personal use in a digital marketplace.
Another such example is the American film director Quentin Tarantino recently announcing that he will be auctioning 7 unreleased clips from his 1994 movie Pulp Fiction as NFTs.
The Relationship Between Regular Crypto and NFTs
Similarly to common crypto tokens, non-fungible tokens also use blockchain technology to verify proof of ownership, as we have dealt with in a previous article on this blog. However, the similarity effectively stops there between the two assets. While cryptocurrencies are essentially a decentralized non-physical currency issued by a private entity, non-fungible tokens are digital assets that denote, in some cases, real world items. Perhaps with the exception of stablecoins, crypto, unlike NFTs, is not meant to replace or “digitalize” real world or fiat currencies. It is simply another method of accumulating and using wealth.
However, there is another instance in which the two are linked: in many marketplaces, NFT creators or artists will only accept cryptocurrency for their digital assets as payment.
What is the Future of Non-Fungible Tokens?
Although it is difficult to predict what the future has in store for NFTs, what is certain is that, at the moment, they are here to stay, and are actually becoming hugely popular: around $175 million has been spent on NFTs since only November 2017.
These quantities have some experts claiming that they are a bubble ready to burst like the Dutch tulip craze of the 17th century. Others believe they are ultimately too popular to ever fail, especially when considering that essentially anything can be digitized and/or sold as an NFT. And with popular figures like Tarantino, the American singer Grimes, and other celebrities wanting in on the craze, it is difficult to see why they would ultimately fade out of mainstream public consciousness to the point that they will become financially unstable.
Gwyneth Iredale, The Difference Between Fungible And Non-Fungible Tokens, available at https://101blockchains.com/fungible-vs-non-fungible-tokens