Non-fungible Tokens (NFTs) – what you should know
- NFT stands for Non-Fungible Token. The easiest way to understand it is to use the analogy of a limit-edition art piece that has a digital proof of ownership backed by blockchain.
- In theory, any unique item that needs proof of ownership can be tokenized as an NFT.
- NFTs can be bought from marketplaces or be earned by playing NFT games or participating DeFi projects.
- Although NFT market is surging, the technology is still in its infancy. It’s important to do your own research before making NFT investment decisions.
The digital picture above was sold for nearly $17 million (at the current ETH price of around $3,600, as of writing). If you think that’s crazy, the one below was sold for nearly $139 million.
Wait, now everyone can save these jpg’s on their phones and become millionaires, right? That’s not how it works.
The above jpg’s are NFTs – Non-fungible Tokens, a term only a niche group of crypto enthusiasts knew at the beginning of 2021. By the end of the year, nearly $41 billion had been traded on NFTs, according to the latest data from NonFungible.com, a database of blockchain gaming and crypto collectible markets. The search trend for the term “NFT” on Google (shown below) gives a sneak peek on the eruption of NFTs in 2021. NFT rapidly caught fire across a wide range of industries, especially in arts and collectibles.
With that said, so…
What is NFT?
The easiest and non-technical way to understand an NFT is by using an analogy of a limited edition print of an artwork. In the physical world, an artist would sign the physical print and include a print number (for example, one of ten). The artist’s signature and the print number are not the artwork but a means of authenticating the artwork.
In the NFT world, on the other hand, an NFT represents the digital form of the artist’s signature and the print number. Backed by blockchain technology, authenticating an NFT does not require expertise from a centralized organization, but instead can be done by anyone from the on-chain data.
For example, an authentic Vincent van Gogh’s watercolor on paper was sold for $35.8 million, while a reproduction of the original piece is worth much less if any and my digital copy above is worthless. The authenticity of the original piece requires expertise from institutions such as Van Gogh Museum or other authorities.
Similarly, a NFT like the aforementioned “Everydays: The First 5000 Days” could be sold for hundreds of millions of dollars while my above jpg copy is worthless because mine is not THE one. Unlike Vincent van Gogh’s watercolor, the authentication of the NFT does not require expertise but instead can be done by as simple as doing a Etherscan search on the website by anyone.
However, NFTs are not just about artwork. The term NFT can be used to represent ownership of any unique items which include but not limited to art, collectibles, real estate, and even Jack Dorsey’s first ever tweet (which was sold for the equivalent of $2.9 million). NFTs can only have one owner at a time, and they are secured by the blockchain--no one can modify the record of ownership or copy/paste a new NFT into existence.
NFT stands for Non-fungible Token, meaning the token is not interchangeable for other items because of their unique properties. Fungible items, on the other hand, can be exchanged because their value defines them rather than their unique properties. For example, the “Everydays: The First 5000 Days” digital art is non-fungible because it cannot be interchanged with another one since there is only one existing, but US dollar is fungible because 1 dollar is exchangeable for another 1 dollar.
In theory, any unique item that needs proof of ownership can be tokenized as an NFT. Here are some examples of NFTs that exist today, to help you get the idea:
- Unique digital artwork: The aforementioned “Everydays: The First 5000 Days” is an example of how NFTs are taking over the digital art industry by storm.
- Digital collectibles: CryptoPunks and Bored Ape Yacht Club (BAYC), which are two top NFT digital collectibles, have been hitting the news headlines for the jaw-dropping selling value of some of their collections.
- In-game items: NFT games such as Axie Infinity and The Sandbox use NFTs to provide ownership of digital properties within a game.
- Unique sneaker in limited-run fashion lines: RTFKT Studios, a virtual sneaker company recently acquired by Nike, sells NFT sneakers which exist only in the digital world.
- Domain names: After Ethereum Name Service (ENS), a simplified Ethereum standard address, migrated the ENS.eth, each domain, such as ethereum.eth, becomes an NFT.
- Tickets that give you access to an event: For example, Maroon 5, a pop American band, released the Maroon 5 NFT Collection which grants access to a listening party hosted by the band and two portrait bundles.
How can I get NFTs?
There is a load of NFT marketplaces that have a variety of NFTs on sale, from both famous artists and amateurs. Some of the biggest are OpenSea for Ethereum-based NFTs and Treasureland for Binance Smart Chain. You can also find NFTs by playing blockchain games or participating DeFi projects.
SynFutures is awarding its community members with NFTs for their support of the project. The NFTs are artistic and convertible into cryptocurrency. That means people can speculate on the future price of the cashable amount. In addition, SynFutures has granted certain NFT holders the governance voting power. You can start earning NFTs by joining SynFutures community.
NFTs and DeFi
NFTs and DeFi share the same infrastructure, and it is natural to see they are starting to work together in a number of ways.
There are DeFi applications that let people borrow money by using NFTs as collateral. By putting their NFTs as collateral, people can access a loan. For example, a loan of $1.4 million in stablecoin DAI was issued on NFTfi using NFT Autoglyph #488. NFT-backed loans are gaining popularity and adoption in the past few months.
NFT creators can also create "shares" for their NFT, called fractionalized NFT. This gives investors and fans the opportunity to own a part of an NFT without having to buy the whole thing. This adds even more opportunities for NFT minters and collectors alike. Fractionallised NFTs, which becomes fungible asset after fractionalization, can be easily traded on box DEXs and NFT marketplaces.
NFTures, a NFT derivative trading DEX, provides a platform for people to long and short NFTs. If someone thinks a certain NFT is too frothy, NFTures allows the user to short the NFT without claiming ownership, and vice versa.
NFTs have gained adoptions in a wide range of industries. However, the technology is still in its infancy. While it is easy to think of NFTs as art, collectibles, or virtual sneakers, there is a whole world of projects using them in different ways.
There are plenty of projects exploring the tokenization of real estate, one-of-a-kind fashion items, and more. Although the tokenization of physical items isn't yet as developed as their digital counterparts, it’s not hard to imagine one day you could buy a car and receive the deed as an NFT in return.
The new use cases and developments of NFTs are constantly coming out. The integration of NFTs and others, such as games and Metaverse, provides even more use cases for NFT and more hypes for the NFT market. For investors, it’s important to understand precisely what they are getting into before making investing decisions.
Investing in NFTs? Get early access to NFTures, the world’s first derivatives product that enables users to take long or short positions in individual NFTs like CryptoPunks, Art Blocks, and Bored Ape Yacht Club, or a basket of NFTs comprised of multiple assets.
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