Since the turn of the millennium, the global finance sphere has turned on its head. The first wave of change was the advent of internet banking in the early 2000s.
Little did we know, that it was only the beginning of a radical wave of digital transformation in the industry. The 2010s were defined by yet another phenomenon – Cryptocurrency. Today, the investment world is abuzz with Non-fungible tokens (NFTs).
In 2009, Bitcoin was created. However, it did not gain real prominence until 2013. But when it did, it completely changed the game. People could now trade across borders without the shackles of the global fiat system. Its Blockchain technology digitized money & finance to an unprecedented level of speed, efficiency, and transparency.
With Bitcoin Trading north of CA$55,000 as of March 2021 and the meteoric rise of Ethereum & Dogecoin and hundreds of other altcoins, Cryptocurrency is poised to mark another era.
Unfolding events across the world today show that this wave is showing no signs of slowing down. From Wall Street to Dalal Street, the latest mantra on the block is Non-Fungible Tokens.
While you may already be feeling that nagging fear of missing out again (Like you did with Bitcoin) hold on a minute. You should never invest in anything that you do not understand.
That’s why in this write-up, we will explain what NFTs are.
What is a Non-Fungible Token?
NFT is a spin-off of decentralized cryptocurrency technology. It stands for Non-Fungible Token.
Non-fungible tokens are cryptographic assets that exist on a blockchain. Like your fingerprints, NFTs have unique metadata and identification codes, and as such, they cannot be replicated.
In cryptographic terms, the word “tokenize” means creating a digital version of an item for the purpose of trade on a crypto-network.
How do NFTs Work?
NFTs are typically used to codify real-world assets to make them more efficiently tradeable, accessible in a transparent market. Today, a wide range of real-world assets. From artwork to rare memorabilia and even real-estate.
Furthermore, NFTs can be used to digitize people’s property rights, identities, and more.
“Tokenizing” these real-world assets enable them to be bought, sold, and exchanged more efficiently across borders. Tokenizing also eliminates the probability of fraud or counterfeiting.
Differences between NFTs and Cryptocurrency
NFTs and Cryptocurrencies share a few similar features, but they are not identical in any way.
- · Multiplicity
Unlike Cryptocurrency, where new units can be mined, farmed, and reproduced, NFTs cannot be reproduced or multiplied. Once an NFT is created, it retains its uniqueness, and no other version of that specific asset can be further reproduced. This is why they are called Non-fungible.
- · Equivalence
Unlike Cryptocurrency, NFTs are not equivalent to one another. Hence, they cannot be traded for another NFT. For instance, millions of Crypto traders around the world own units of different currencies like Bitcoin Etheruem, LiteCoin, etc.
They can convert and trade the currencies among themselves in equal value. On the other hand, NFTs cannot be traded or exchanged at equivalence. No two people in the world can simultaneously own the same NFT unit. And by extension, they cannot be used as a medium of exchange for any underlying commercial transactions.
Essentially, the only similarity between NFTs and Cryptocurrency is that they both exist on a Blockchain. NFTs are not designed to be a form of currency for exchange. They are only a digital vehicle to represent existing real-life assets.
Advantages of NFTs
NFTs bring a whole new paradigm of opportunities to global trade and finance. Here are some advantages that you stand to gain from NFTs.
- Zero Fraud
They eliminate the incidence of fraud and counterfeiting in trade.
2. Removes Barriers
They make assets available to everyone across borders, without any real-world restrictions and regulations.
3. Removes Intermediaries
NFTs remove intermediaries between buyers and sellers of a property. Thereby making the trade more valuable for both parties as all additional costs are eliminated
It increases the speed of transactions. Trade requests and offers are validated in real-time by computer networks on the blockchain.
It enables fractional ownership of assets.
Prominent Tokenized Industries
Despite its early days, Tokenization has already significantly disrupted the way we invest in assets and do business. Corporations and Industries are increasingly adopting the NFT economy to establish new markets and increase sales.
According to research by Forbes, the global NFT market was only worth about $42 million in 2018. By Q4 2020, it had grown by 705% to over $338 million.
Diverse forms of assets have been tokenized, such as Intellectual property, Landed property, Artworks, Memorabilia, and even more bizarre items like sports cards and tweets!
NFTs in Art
The biggest single NFT sale to date is the sale of a digital artwork –”Everyday: The First 5000 Days,” by Mike Winkelmann, under the name Beeple. The artwork sold for a whopping $69 million. At the time, it instantly became the third-highest auction price attained by a living artist.
NFTs in Real Estate
NFTs have also been integrated into the entered the real estate and architecture industry.
Prominent artist Krista Kim sold an NFT-based digital house for 288 ether – The native currency of Ethererum. 288 Ether was valued at $500,000 when he sold the tokenized version of the house.
NFTs in Precious Metals
Tokenization is growing increasingly popular in the precious metals industry. Most notably, the Royal Mint of Great Britain has embarked on a gold tokenization project with tagged RMG – Royal Mint Gold.
NFTs in Sports
The global sports industry is arguably the industry that is blazing the trail for the NFTs. From Soccer and Cricket to Rugby and Basketball, NFTs are scoring big in sports.
Covid-19 has hugely impacted global sports over the past year. With fan lockouts and lost revenue for teams, NFTs have provided a new potential stream of income for clubs and players. Fans also get to sustain a closer relationship with their teams at a time the social distancing measures have kept them away from arenas and stadiums to watch their heroes.
It allows sports fans to interact more actively and financially with their favorite stars and teams. In literal terms, with NFTs, fans now get to put their money where their mouth (and heart) is.
Tokenisation of Sports
The leading sports organizations in the world today are drawn towards exploring the NFT economy in different dimensions. This wave of digitization has taken over many other sports too. Here are a few more examples;
NFTS in Basketball
In the Basketball world, The National Basketball Association in the United States has led the way with the “NBA Top Shot” project. It is a crypto-based collectibles venture which is designed to allow fans to trade tokenized video highlights.
The project has been a massive slam-dunk among basketball fans worldwide. The NBA Topshot digital collectible card of LeBron James sold for $100,000.
In another instance, a tokenized unit of LeBron James shooting a dunk sold for over US$200,000.
NFTS in Soccer
Football is arguably the most prominent sport in the world. It is only natural that NFTs will score big in such an industry. The leading Football (Soccer) clubs have been launching NFT projects to offer fan tokens to their teeming supporters, including Barcelona, PSG, Real Madrid, to name a few.
More recently, Italian football giants AC Milan joined the NFT movement by launching the $ACM fan token. Popular crypto-exchange, Binance reported that the move was a massive success with a total of 27,414 fans participating in the launch.
Frequently Asked Questions
1) What was the first NFT Created?
Force of Will – an NFT trading card game.
2) What are the most expensive sport NFTs?
$100,000. – An NBA Topshot tokenized collectible card of LeBron James
300 ETH – From the NFT-based virtual reality game Axie Infinity.
3) What is the most expensive NFTs ever sold?
“The First 5,000 Days” – Artwork by Beeple, which sold for $69 million.
Do you remember indifference and pessimism that marked the early days of Bitcoin? NFTs have presented another chance for early investors to explore a new world of opportunities – and a chance to have fun while at it.
However, remember the cardinal rule – Only invest what you can afford to lose and do not make any investment decisions without first consulting a professional.