In recent years and every day more, we find headlines highlighting exorbitant NFTs investments. NFT booming is experienced with different views, sometimes even with confronted opinions, ranging from great enthusiasm to complete mistrust.
In this article, we explain what an NFT is, and try to offer a realistic approach of the NFTs potential for individuals, companies and any kind of organization.
What is an NFT?
NFT stands for non fungible token. An NFT can be defined as a unique, unequivocal representation of an asset (a digital or physical asset) in a blockchain platform.
Though NFTs use the same technology as cryptocurrencies, they are not the same and we should not mix them up. Cryptocurrencies, as any currency, are fungible. This means, they can be divided and exchanged for others with the same value. Fungible items are defined by their values rather than by their unique properties. On the contrary, non-fungible items are not interchangeable for other items because they have unique properties.
We can contemplate an NFT as a digital authenticity and traceability certificate of the asset it represents. For a better comprehension, let us explore how NFTs are created and the way they work.
How are NFTs originated?
Tokenization is a means of securing information when it’s being transmitted on the Internet. Any asset can be tokenized. With tokenization, it is possible to turn almost any asset, real or virtual, into a digital token. An NFT is a digital token.
NFTs represent digital assets which are unique in nature. Non-fungible tokens can come in different formats such as videos, music, images and other types of media. They are usually represented through the ERC-721 tokens. These tokens serve basically as a verifiable and undeniable proof of ownership of the digital assets.
The process of tokenization when we talk about NFTs means to provide the asset with an ID and link it to a set of metadata. This process makes it possible to guarantee the authenticity of the asset, identify its author, show its initial and purchase value, as well as to trace the transactions made with it since its creation.
The NFT world is relatively new but the scope for NFTs is really wide. You can make an NFT of anything that is unique and needs a proof of ownership. A very common example is the tokenization of historic artworks but also the new digital artistic creations. Tokenizing real estate is another application. A non-fungible token of a house would include a clear immutable record of all its “life”.
Why are NFTs connected to the features of authenticity, transparency, unchangeability or traceability? Why is an NFT synonym of trustworthiness?
Blockchain technology, key for transparency and reliability
A decentralized data record through blockchain assures that this digital certificate linked to a non fungible asset can not be altered, copied or counterfeited.
Blockchain technology is used to buy and sell NFTs. Blockchain makes it possible to prove the authenticity of the asset and also brings complete transparency to any process, as each transaction with the NFT is registered through smart contracts.
Returning to the house example, let us get into the skin of the buyer. We would like to know with certainty about the renovations it has had. Blockchain technology brings certainty and confidence, because the data of the NFT house, that one we are thinking of buying, can not be manipulated or hacked. The NFT provides us with a clear and certain curriculum of the asset.
The significance of NFTs in the digital world
People and communities have always looked for ways to prove the authenticity of its assets as well as systems to trace the existence of the same since their origination. So the needs for certification and traceability are not new but, as our way to exist and interact in the world becomes more digital, it is essential to have our properties in the digital world too.
People wish to have their physical and digital belongings in a digital space. This is why NFTs can be considered as a way to express our identity and to have our property in the digital world we are already habiting. This is the reality, it can enthuse us or not, it is already here. And around this idea, it is emerging a new way to run and do business, and consequently a new economy.
In fact, the investment bank Jefferies expects the NFT market to reach more than $80 billion in value by 2025. The bank raised its market-cap forecast to over $35 billion for 2022 and anticipates double-digit percentage growth for the next five years.
Non-fungible tokens have existed since 2017, though it is now when general audiences listen and read daily about them. The first NFT, CryptoPunks, was rapidly followed by CryptoKitties, which went viral and raised more than $12 million.
NFTs became really popular in 2021, when Christie's sold for more than US $69 million the artwork titled Everydays – The First 5000 Days, by American artist Mike Winkelmann, also known as Beeple.
Soon later, Twitter CEO Jack Dorsey's first tweet was offered as a non-fungible token. It was sold for 1,630.58 ether, about $2.9 million based on ether's price at the time of sale. The tweet, which said “just setting up my twttr,” was first published on March 21, 2006. And, just to bring another example, a hand-painted "self-portrait" by the world-famous humanoid robot, Sophia, was sold at auction for over $688,000.
Overcoming the skepticism
Maybe, these examples of multimillionaire transactions, many of them related to digital contents far away from our daily lives and the immediate business requirements, are the reason why NFTs contributions have been seen with a certain amount of disbelief.
However, as Professor of Blockchain and Digital Innovation at Instituto de Estudios Bursátiles, Pilar Troncoso, claims, “each place where a digital element that certifies the ownership is needed, is a niche in which NFTs will prove their potential.”
For beyond trends, application areas for NFTs
Blockchain technology uses cryptography to generate an immutable record of the transactions. NFTs are represented by unique cryptographic tokens that provide an additional layer of security, as they assure that each asset can be traced and verified. Apart from that, they are also designed to represent rights or privileges.
Because of that, far beyond the popular use cases in the business of Art, Entertainment or Sports, NFTs should be seen as a tool to optimize processes in any industry and to facilitate a real and reliable digitalization.
NFTs can bring traceability solutions in food, automobile, jewelry, healthcare…, in any sector. They can also help private and public organizations to overcome digital identity and credential verification challenges. Philanthropic foundations have in NFTs a way for transparent fundraising. And in the financial world, for instance, they can serve as a collateral to get a loan.
In another article, we focus on NFTs use cases to better understand, according to Troncoso, why “each place where a digital element that certifies the ownership is needed, is a niche in which NFTs will prove their potential."
What can we do for you at Wealize?
At Wealize you will find a team of blockchain experts to help you enhance your business addressing challenges related to digital identity, traceability or financial transparency.
NFT, smart contract, wallet, plataform… You will find in us an agile and dedicated ally to develop the digital products you need, from conceptualization to delivery.