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NFTs: The What, How and Why

Mar 18, 2021
NFTs

Whether you have been in the industry for a long time or simply stumbled upon an article or post in social media, you have probably heard something about them or the many people taking advantage of the possibilities they offer, such as the artist known as Beeple selling one for over US$ 69 million [1]. Enter NFTs (non fungible tokens), an increasingly popular type of cryptocurrency that is re-aiming to establish itself as a digital asset class in the blockchain space.

What are NFTs? 

NFT stands for “Non-Fungible Token,” a type of digital asset created on smart contact platforms, such as Ethereum. They are unique digital objects that represent ownership on the blockchain and can be cool to own or even profitable to trade [2]. 

Fungibility

Fungible assets are interchangeable. A clear example of this is paper currency, where all same-currency bills hold the same value and are interchangeable. They can also be (somewhat) divisible, like dollars into cents for instance. Conversely, non-fungible assets are unique and not necessarily interchangeable. Real estate, for example, is a type of unique asset. To its most subtle distinction, no two (otherwise identical) buildings can occupy the same physical space. Both fungible and non-fungible assets can be digitally represented as “tokens” in a blockchain [3]. 

NFT Uses

With artworks as its newest proponent, raising millions through different auctions, NFTs are gaining a share of the spotlight. In fact, “NFTs” Google searches have momentarily overtaken “Cryptocurrency” and “Blockchain” as the most searched words in the space [4]. Notwithstanding, many uses can be found for NFTs. A non-exhaustive list includes:

  • Digital artworks
  • Music
  • Digital collectibles
  • Domains
  • In-game items
  • Tickets to events

Where’s the value and how can I acquire NFTs?

Unlike most cryptocurrencies, the majority of NTFs have no palpable use. The transactional, utility, and governance features that characterize most coins are not present in NFTs, so determining its value is a more complex task. NFTs can be a financial investment, a sentimental purchase, a collectible item or a way for the buyer to feel more connected to the NFT creator, like an artist or a brand. It is similar to how people collect baseball cards, stamps, limited edition toys, or sneakers.

As with many (mainly non-financial) asset types, the value of NFTs is derived from its perceived value, assigned by people who want to buy and sell it. It is more comparable to art valuations, rather than financial assets valued through intrinsic models, such as cash flow discount models. Even in a space that can be mostly moved by speculation (reselling above purchasing prices), there are some indicators that can point us in the right direction of the token value, or at least spare us from the wrong path. According to Bankless [5], these indicators -or traits– include i) NFTs chain security, ii) on- (vs off) chainness, iii) age of the NFT, iv) environment around the NFT (who is the creator, what community does it have, etc.), v) scarcity, vi) release pace, and vii) quality richness. 

NFTs are bought and traded on digital marketplaces just like any other cryptocurrency, only instead of buying some amount of tokens, you buy a single token. Nifty Gateway is the biggest one according to Crypto Art, an NFT analytics aggregation platform.

Real-world cases

Some real-world cases of the aforementioned uses for NFT include [6]:

nft ticketing

NFT Kred

NFT ticketing: In a world with ticketing systems plagued by a number of issues, NFT ticketing can provide traceability, validity, security, and data confidentiality. Price visibility and controls on secondary markets, as well as fraud management can be born from the supporting blockchain technology. GET Protocol, for example, is a protocol that has recently launched this [7].

 

nba nft token

NBA TopShot

CryptoKitties’ creator DapperLabs has signed on to help the NBA in setting a NFT marketplace. NBA “Top Shot” buyers can purchase ‘packs’ of NFTs that feature famous in-game moments. Similarly, and inspired by this, others have climbed on the NFT sport wagon. NFL star player Rob Gronkowski, popularly known as “Gronk,” is launching his own non-fungible token (NFT) collection [8].

 

taco bell

Blockchaintd

Even fast food chain Taco Bell created five different NFTs released on Rarible marketplace [9].

kings of leon nft

Kings of Leon music group will release their new album “When You See Yourself,” along with three types of tokens. The first type of token will be a special album package, the second will offer holders perks like front-row tickets for life, and the third will be for “audiovisual art” [10].

SCALABLE Tokenization

Being able to tap into vast liquidity pools of fungible and non fungible token(ized) assets provides a unique opportunity for a large number of people that have something of value. It doesn’t matter whether you are a painter, singer, or football player, as long as you have something that other people want. 

At Scalable we focus on a small but powerful offering, with Tokenization being one of them. We can help tokenize both fungible and non-fungible, tangible and intangible assets. From world assets like real estate, to intangible but fungible digital currencies and intangible non-fungible assets like patents and trademarks, we can handle anything you throw our way.

Learn more about our tokenization practices here and subscribe for more news and information on the digital asset space!

 

 

 

Resources

[1] Reyburn, Scott. JPG File Sells for $69 Million, as ‘NFT Mania’ Gathers Pace. The New York Times, 11 Mar. 2021, www.nytimes.com/2021/03/11/arts/design/nft-auction-christies-beeple.html

[2] Steinwold, Andrew. The History of Non-Fungible Tokens (NFTs). Medium, 7 Oct. 2019, medium.com/@Andrew.Steinwold/the-history-of-non-fungible-tokens-nfts-f362ca57ae10

[3] For a more detailed discussion on tangibility and fungibility, please visit our earlier blog entry: “DeFi Apps: Asset Tokenization

[4] Stein, Leila, and Anirudh Tiwari. “’NFT’ Search Volume Overtakes ‘Cryptocurrency’ and ‘Blockchain.” BeInCrypto, 16 Mar. 2021, beincrypto.com/nft-google-searches-overtakes-cryptocurrency-and-blockchain/

[5] Peaster, William M. “Bankless Newsletter.” 17 Mar. 2021. https://bit.ly/3cI3VNb

[6] See theblockcrypto.com for constant updates of NFT uses: https://www.theblockcrypto.com/search?s=nft

[7] Besancia. The Future of Ticketing with GET Protocol. NonFungible.com, 10 Mar. 2021, nonfungible.com/blog/future-of-ticketing-get-protocol

[8] McIntosh, Rachel. NFT Revolution: NBA’s “Top Shop” Token Marketplace Rakes in $230M in Sales: Finance Magnates. Finance Magnates, 1 Mar. 2021, www.financemagnates.com/cryptocurrency/news/nft-revolution-nbas-top-shop-token-marketplace-rakes-in-230m-in-sales/

[9] “Taco Bell Just Launched and Sold out Its Collection of Taco-Themed NFTs.” The Block, 8 Mar. 2021, www.theblockcrypto.com/linked/97568/taco-bell-rarible-nft-sale

[10] More, Saniya. “Kings of Leon to Release Three Non-Fungible Tokens along with New Album.” The Block, 4 Mar. 2021, www.theblockcrypto.com/linked/97066/kings-of-leon-new-album-nft

Sources

“Non-Fungible Tokens (NFT).” Ethereum.org, ethereum.org/en/nft/

“The Different Types of Cryptocurrency Tokens Explained.” Maker Dao Blog, 11 Feb. 2020, blog.makerdao.com/the-different-types-of-cryptocurrency-tokens-explained/

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