Burning Banksy, dead body from Beeple (his work ‘Every day: the first 5000 days’ sold at Christie’s for $69,3 mln), Shawn Mendes’ virtual waistcoat, Jack Dorsey's first tweet, a GIF from Lindsay Lohan are the range of quite weird things, or to be more precise, assets of quite perceived value, which were converted in NFT and sold out for impressive sums with astonishing success.
NFT tokens are the blockchain trend in 2021, first of all, are related to the very industry’s most vibrant progress.
Mysterious NFT – what are they?
Let’s get a grasp on them in more detail. NFT (non-fungible token) are non-fungible tokens or, more precisely, digital assets granting the right of possession of different digital objects.
You can tokenize texts, images, audio/video records, works of art, game items, characters, club membership cards, put it otherwise, everything that falls under the definition of digital assets. The most interesting thing is as follows: each NFT token is unique and one-of-a-kind, impossible to be copied.
Smart contracts made it possible because they attach the right of ownership in blockchain where information can not be eliminated or falsified. Put it otherwise, NFT is a revolutionary solution to intellectual property and copyright protection in general.
How did NFT become so popular?
NFT started to draw attention with the appearance of Colored Coins (2013), Counterparty (2014) solutions which created the possibility of asset tokenization.
In 3 years the pixelized portraits of Crypto Punks by Larva Labs on Ethereum blockchain, memes of Pepe the Frog from Rare Pepe Directory grabbed the attention of the wider audience.
Nonetheless, the drastic breakthrough in the NFT (bringing millions of dollars in profit to their owners) popularization and the first serious hype around NFT are attributable to CryptoKitties.
What's funny is that in this game, which has received enormous popularity, the users get entertained by having virtual cat pets, the goal is to get a kitten with the rarest characteristics. Would you like to buy such a little animal?
You will be surprised that for some of them you’ll have to pay over 100,000 dollars!
What’s next?
Everyone would like to experiment: the projects (Enjin, Eminence) have begun to raise NFT and implement additional game elements. Besides the kittens' project some new L2 games were built, their idea was to be created for the existing tokens, not the other way around.
Tokenization spread quickly from toys to financial instruments. As for digital art, it has significantly simplified and improved the trading process as well as strengthened security.
The onrush of blockchain technologies, the arrival of many new players on stock exchanges, a pandemic which made people dip into online and draw the attention of many of them to new financial instruments and some famous names next to NFT mentioning in media (for example, Elon Musk, Banksy, Paris Hilton) have brought about a new round in the industry growth.
According to Nonfungible, since the appearance of NFT up to the present over 5,35 mln tokens have been sold, and on the basis of the results of 2020, the general capitalization of the market has outstripped $8 bln. Everything is coming up to the increase of the market volume already in 1 year up to $40–50 bln.
Also, it is worth mentioning that in March NFT sales were $200 mln, which exceeds sales for the entire past 2020 and it is the highest in whole NFT history.
'I did buy a kitten in CryptoKitties. What are the other benefits of NFT?'
Excellent question! Since by now digital art has become kind of mainstream, many people forget (or even are not informed) that NFT has a much wider potential of application and influence. Let’s delve into 3 global effects of NFT application on the global economy.
Decrease in inflation.
Let’s talk about DApps – decentralized applications based on blockchain technologies. These include games, social media platforms, crypto wallets, and financial applications. I mentioned earlier that here NFT is used for token production and collecting, but it’s just the tip of the iceberg.
The standard economic models of most games are becoming obsolete, no matter from what perspective one looks at it - they cannot escape inflation - which is an extremely topical problem in the modern world. Tokenization can minimize this effect and attract additional investment to the industry.
Increase in the market liquidity.
Consider this in the real estate market: what about buying a piece of virtual land? NFT creates new investment options: virtual worlds based on blockchain technology where each user can purchase and eventually sell a piece of virtual property on marketplaces.
Such a virtual market has a constant presence of investors ready for trading which provides the necessary liquidity. Since NFT tokens can be equated with the share of real assets, trends in the use of this technology can contribute to the rapid development of many markets.
Proper data storage and transfer.
Centralized systems are characterized by frequent hacking, attacks, and malfunctions due to the fact that the third party is not always reliable. User data can be modified, processed without consent, resold, deleted, etc.
On the contrary, digital identification increases the integrity of user information, ensures confidentiality, and reduces the possibility of leakage.
Transactional data stored in the chain is resistant to attacks and other vulnerabilities: easy to implement, and reliable transfers of NFT assets minimize economic frictions.
Today there are still many questions regarding the functioning of the market of non-fungible tokens and their application areas.
Nevertheless, the tokenization is gaining momentum, the prospects of NFT continue to widen, the NFT market is growing fast, which is facilitated by the rapid development of blockchain technology and infrastructure.