Updated: Oct 25, 2022
An apartment in Ukraine was sold as an NFT last year. It doesn't make sense, right? Your mind must be bombarded with a lot of questions now. Let's make this simple by breaking down this puzzle and understanding things from their origin.
There have been a lot of talks about Bitcoins and other cryptocurrencies from the past few years. You might wonder why I changed the topic from NFTs to cryptocurrencies. Well, there is this one cryptocurrency with the second highest market cap, Ether. That's relative to NFTs. Ether is the indigenous cryptocurrency of the blockchain named Ethereum.
Everyone uses banks to make their transactions and store their assets. Basically, banks are just mediators between you and the person you want to transfer money to. What blockchain does is that it eliminates the brokers in between and establishes a transparent channel between the sender and receiver. The blockchain forms a digital ledger for all the transactions anyone on that network can view. This behavior can be compared to Google Docs, where the documents are accessible through a link. Furthermore, blockchains are decentralized and secure; everybody agrees that it happens when a person sends one thing.
Likewise, the Ethereum blockchain is a distinct blockchain. Apart from managing cryptocurrencies, it's a well-known platform for NFT or Non-Fungible Token transactions. NFTs are cryptographic assets stored on a blockchain with unique identification codes and metadata. Unlike cryptocurrencies, NFTs can be almost anything as long as it's digital. NFTs cannot be traded or exchanged at equivalency. On the other hand, the cryptocurrencies are identical, thereby making them easily tradable.
"A one-of-a-kind trading card, however, is non-fungible," The Verge writes. "If you traded it for a different card, you’d have something completely different."
The unique behavior of NFT has helped it score itself many use cases. NFTs are an ideal way to represent physical assets digitally. These NFTs are based on blockchains; they can eradicate brokers and mediators while exchanging. They can cut out the mediators, simplify transactions, and create new markets. The current market for NFTs is collectible artworks, sports cards, and rare assets. Twitter's Jack Dorsey recently shared a link to a tokenized version of his first tweet, in which he said, "just setting up my twttr." The auction for the NFT version of the first-ever tweet has already reached $2.5 million.
What makes NFTs different?
Like real money, cryptocurrencies are transferable and fungible, i.e., they can be traded off in equivalency. For example, the value of one bitcoin is always equal to the value of another bitcoin. Similarly, this applies to other cryptocurrencies as well. This characteristic of cryptocurrencies makes them suitable for secure digital transactions. NFTs, on the other hand, shift this pattern by making each token distinct and incomparable. They are extensible; people can combine one NFT with another and breed the third one that'll be unique too!
Just like other cryptocurrencies, NFTs hold the owner's details for easy and reliable transactions. Owners of the NFTs can add their ownership details in the metadata. For example, an artwork can hold a digital signature of the artist, representing that it's his artwork. You might be thinking that can't we just copy the digital artwork? Technically speaking, you can, but when you purchase the NFT version of the artwork, you are basically purchasing the certificate of authenticity. Everyone can see that the digital artwork possessed by you is the original. Thanks to blockchain technology, everything is kept transparent so people can identify the originals and duplicates without any difficulty. You'll be a part of a fair deal!
Now, coming back to the real estate deal in Ukraine that happened over an NFT. Let’s understand how it happened. Firstly an LLC (Limited Liability Company) was made for the property. Later, a separate non-fungible token or NFT was kept aside for the house. Finally, the legal paper was constructed, which stated that whoever bought that NFT would have sole ownership over the property and the LLC. The NFT was auctioned, and the winner ultimately owned the property and the LLC.
Why do you require NFTs?
By making the digital tokens of physical assets, NFTs are a step closer to reinventing the infrastructure of modern finance systems. Admittedly, the whole idea of creating digital tokens can sound fictitious and unnecessary, but when combined with blockchain technology, they become potential units of change.
The most pronounced use of NFTs is that it eliminates intermediaries. As a result, they improve the business process by removing mediators and connecting the buyer and seller over a transparent channel.
NFTs are outstanding for identity management. For example, consider a scenario wherein you create tokens for all the identity-related documents, like passports, your social security card, and so on. It would be very efficient to reproduce them whenever required, as NFTs are unique, and it's impossible to create copies without others knowing on that network. So this can be a productive way to use NFTs.
Decentraland, a virtual reality platform on the Ethereum blockchain, has already implemented a concept wherein users can purchase pieces of digital land over an NFT. Thus, making the transactions genuine and reliable. You wouldn't be shocked to see more houses and properties purchased via NFTs shortly!
Are NFTs safe?
NFTs use blockchain technology, similar to cryptocurrencies. Thereby making it solid and secure. The decentralized nature of the blockchain makes hacking into NFTs difficult, although not impossible. One disadvantage or the security risk of NFT is that you could lose access to your NFTs when the providing or the hosting platform goes out of business.
NFTs can be seen in all verticals of society any time soon, so buckle up and brush up your knowledge on them. Connect with us now if you wish to include NFTs in your applications or products.