Article by Aryan Chhajer from Finance Wing, GAEE JMI

What are NFTs?

Non-fungible tokens (NFTs) are blockchain-based cryptographic assets with unique identification codes and metadata that distinguish them from one another. They cannot be traded or exchanged at equivalency, unlike cryptocurrencies. This is in contrast to fungible tokens, such as cryptocurrencies, which are identical to one another and can thus be used as a medium for commercial transactions.

NFTs can be used to represent real-world items such as art, collectables, and real estate. However, these tokens can only have one official owner at a time and are secured by the Ethereum blockchain—no one can modify the record of ownership or create a new NFT.

How do NFTs work?

In recent years, there has been a lot of buzz surrounding blockchain and crypto-assets. You’ve probably heard that NFTs are the next big thing in the digital world. Non-fungible tokens, as the full name implies, are a method of affixing scarcity to digital items, thereby creating value. This enables them to be purchased, collected, traded, invested in, and so on.

Non-fungible tokens have not only brought crypto art and digital collectables together, but have also aided in proving the authenticity of real estate, logistics, and other unique and collectable goods. Since NFTs have received a great deal of attention in the arts, entertainment, and business worlds, here are some interesting NFT use cases:

  • Art NFTs

NFTs and digital art have a long history together. Even if it is fake art in the real world, NFTs can detect it. Through the tokenization of real-world assets and various works of art, the use cases of non-fungible tokens could appeal to the domain of legacy arts.

With the power of blockchain technology, people could simply scan a code on an artwork’s tag and register their ownership on the blockchain. Users could then view the artwork’s entire history, including previous prices at which it was purchased and owned.

  • Ensuring the authenticity of products

    NFTs can be used to ensure that the product you’re buying is genuine. Since the blockchain can permanently store information about the product, checking for rarity and authenticity on physical products will soon be a thing as well. Fake food products, such as supplements and medicine, are a current global concern.

    NFTs can assist in combating this by tracking and tracing food products. Consider scanning a QR code on a nutritional supplement you bought online and viewing the entire journey of the product from manufacturing to delivery.

Enabling exclusive access

NFTs are available to any brand that is willing to invest in the infrastructure required to provide them. It is entirely up to your brand’s creativity to use a membership subscription in conjunction with an NFT. Perhaps you use NFTs, such as digital tickets, to gain access to a gated collection of your products. Or, you use a subscription membership to gain access to gated content, such as early access to NFT drops, limited edition products, or exclusive offers.

Why are NFTs so popular?

Since each NFT, unlike a bitcoin unit, is completely unique, it cannot be swapped like-for-like. The file contains additional information that elevates it beyond the realm of pure currency and into the realm of, well, anything. As a result, NFTs, like traditional art, have evolved into collectable digital goods with monetary value. Essentially, NFTs can be created from almost any unique item that can be stored digitally and has value.                                                                                                                       

They function similarly to any other collector’s item, such as a painting or a vintage action figure. However, instead of purchasing a physical item, you pay for a file and proof that you own the original copy. Any easily duplicated digital file can be saved as an NFT to identify the original copy. NFTs can be created from any type of photography, art, audio, or video file, but they are most commonly seen or read about in the context of trippy futuristic motion artworks.                        

NFTs cannot be exchanged and represent ownership of one-of-a-kind items. This is where popularity comes into play. NFTs have evolved into a type of digital status symbol. Traditionally wealthy people would buy gold or art to demonstrate that they had money to spend, but the digital age has opened up new avenues.

Essentially, when you send $100 to a person, you are actually sending it to an account number that the bank identifies as a person. There is no bank account when you buy an NFT, but the Web3 usernames are wallet addresses. This means that when you buy an NFT, the data is recorded on the blockchain that this NFT is being transferred from this wallet address X to this new wallet address Y.

Royalties

Let’s take a look at the tickets that are sold for a concert. Only when you purchase the ticket does the celebrity/organizer receive the royalty. Now, if it’s a very popular concert, you might end up selling it to a third person for a higher price, but the celebrity or organiser would not be entitled to any royalties in return.

However, because NFTs are based on blockchain and are smart contracts, you can programme these royalties—as in the case of concert tickets. They can be sold or resold, and the royalty paid to the celebrity or organiser is always more profitable than the previous one.

NFT_Royalties

Real Estate Sector

The real estate industry is one of the most NFT-ready. NFTs can be used in real estate to simplify and accelerate transactions, enable smart contracts for properties (allowing automatic payments), and even build decentralised house rental services—all while protecting sensitive data such as credit card numbers.

NFTs can also be used to transfer land documents, provide ownership confirmation, and track changes in property value over time.

One last check: Before you invest, you might also want to:

  • Do your research 

This is number one for a reason. If you are choosing to invest in cryptocurrencies or buy NFTs, it is your responsibility to do adequate research into the companies, coins, services etc. you are getting involved with. So take your time and do as much research as you feel is needed and never rely on a single source of information.

  • Do get involved with NFT communities

Having a group of people who have already been there and done that is extremely beneficial, especially when you are just starting out. If you’re new to crypto and NFTs, it’s a good idea to join a few online communities to get advice and learn more about the trends.

  • Don’t invest more than you’re willing to lose

This is common investment advice, along with the phrase “past performance is no guarantee of future results.” Both are important to remember if you decide to invest in NFTs because the market is highly volatile—which means things can change on a dime. Additionally, as much as people claim to know what is a “sure bet,” the truth is that no one knows for certain. If you are not willing to accept that level of risk, this may not be the best investment for you.

  • Don’t share your keys or bank information with anyone

If you’re just getting started with NFTs, never share your details with anyone. If anyone asks you for information, especially if it comes out of nowhere, pause and double-check before proceeding. Some things can be shared, but your private key, banking information, login information, or anything similar should not be. Hence, if something smells fishy, be ruthless and refuse until you can conduct further investigation.

Start the day with coffee. End the day with NFTs.

Article Summary: NFTs may be the hottest thing in town right now, but like any new technology, they have a long way to go before they become truly mainstream. Despite the eye-watering sums exchanged in headline-grabbing transactions, they remain a niche product. Token holders may end up sitting on a surplus of NFTs with little buying interest if their popularity falls, in the same way as numerous bubbles have burst in recent years.

Aryan Chhajer is a B.A.(Hons.) student at Jamia Millia Islamia, Delhi, and a member of GAEE JMI, an autonomous branch of the Global Association of Economics Education in India. The views expressed are personal and do nor reflect the opinions or views of GAEE or its members.


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