The Rise of NFT's

In the year 2020, cryptocurrencies and blockchain technology had a busy year. The first halving of Bitcoin occurred in the spring of 2020, as it does every four years. Then we saw major financial firms pour unprecedented amounts of money into Bitcoin. Decentralized Finance (DeFi) gained a lot of coverage in 2020.

If you've been following the crypto space, you've probably come across the word "Non-Fungible Token," but you might not know what it means. Non-fungible tokens (NFTs) first gained traction in 2020, but their success skyrocketed in early 2021.

Fungible vs Non-Fungible

The distinction between fungible and non-fungible can seem difficult at first glance, but it is actually very easy. Fungible is a term that refers to something that can be quickly swapped out. As a result, fungible items have the same value as other fungible items. They are interchangeable since they can be swapped out for one another.

The dollar as a currency is the most basic example that can be offered. If you owe somebody a dollar, you expect them to repay you with a dollar bill, but you don't expect them to repay you with the same dollar bill. Since you are preoccupied with the worth of that dollar rather than the dollar you gave them, you can consider any kind of dollar – say four quarters. To put it another way, the dollar is fungible. As a result, fungibility refers to an asset's capacity to be exchanged for other assets of the same kind. Commodities like oil and gold bars are examples of fungible properties.

Non-fungible assets, on the other hand, cannot be traded for one another. They aren't interchangeable because each one is distinct and has a different value than any other asset.

Non-fungible assets are often, but not always, collector's pieces. A car is an example of a non-fungible object. You would be pleased if you take your car to the mechanic and the mechanic gives you another car to drive that is in better shape. You would be dissatisfied if the vehicle is in poor shape. However, since the mechanic's car does not have the same value as yours, it is non-fungible.

Another example is if your grandfather gave you an old watch as a gift; there is no other watch on the planet that has the nostalgic value of that watch. Alternatively, if you have made a piece of art that is original to you, no other object can equal its worth, rendering it non-fungible.

Fungible Token

The creation of fungible tokens is done in such a way that each one is identical to the next. A fungible token may be traded for another fungible token of the same kind. These tokens are exactly the same as one another. As a result, fungible tokens can be used interchangeably.

In fact, fungibility is what makes cryptocurrencies unique in the first place. The majority of cryptocurrencies are interchangeable. For example, Bitcoin and Ethereum are fungible. Since they have the same value, one Bitcoin (or a fraction of one) can be exchanged for another. Ethereum is in the same boat.

Fungible tokens are divisible and not one-of-a-kind. Furthermore, since fungibility means that the tokens have the same value, fungible tokens untangle the exchange and trade processes.

Most fungible tokens in crypto are generated using the Ethereum blockchain's ERC-20 norm.

Non-Fungible Tokens

Non-Fungible tokens are one-of-a-kind and special. They can be thought of as collectibles. Since each non-fungible token contains anything special, they cannot be substituted for one another.

There are about 18 million bitcoins in circulation, for example. Bitcoins are all the same. However, unlike Bitcoin, NFTs have distinct characteristics that differentiate them. As a result, they cannot be used interchangeably.

They're not just one-of-a-kind, but they're also non-divisible, which means they can't be split. As a consequence, the token as a whole is the elemental unit. Digital works of art may also be used to define non-fungible tokens. Since they are difficult to make, they are rare and have a scarcity aspect, which increases their appeal even more.

Cryptokitties are one of the most popular non-fungible tokens in the cryptocurrency world. Because each Cryptokitty is one-of-a-kind, they are frequently sold for large sums of money. A Cryptokitty, for example, cannot be broken down into smaller fractions and then traded with several others, as Bitcoin can. As a result, you can't buy a portion of a Cryptokitty; you have to buy the whole thing.

The blockchain network can be used to prove the authenticity of an NFT. Furthermore, because blockchain technology helps maintain ownership rights, these digital assets can move freely without jeopardising ownership.

The Ethereum blockchain is used by the majority of NFTs. Others, such as TRON and NEO, are based on other blockchains.

You can purchase non-fungible tokens from a variety of NFT marketplaces, such as OpenSea or Enjin Marketplace. Ethereum's Ether cryptocurrency (ETH) is commonly used to purchase NFTs. Other cryptocurrencies, on the other hand, can be used.

NFT: Pros and Cons

Pros

Many people may be able to enter the crypto and blockchain world through NFTs.

Blockchain technology ensures authenticity, increasing the value of NFTs and making them more desirable as a market.

Many people struggle to monetize their work, especially in the arts and gaming, and NFTs can provide a new source of revenue in these fields.

Collectible trading can be made easier with NFTs. As digital copies of collectibles, a variety of rare pieces are available for purchase.

Cons

Building decentralised apps for NFTs takes a long time. And the procedure can become difficult at times.

The demand for NFTs is relatively fresh. As a result, NFTs are not as commonly used as fungible crypto properties. As a result, NFTs can be difficult to use for users who have no prior experience developing decentralised apps.

When someone buys an NFT in the hopes of making money by selling it later, there is a risk of losing money. If the market falls out of favour, the consumer will lose money.

Understanding NFTs can be challenging for people who are new to crypto and blockchain since it is still considered a new sector.

NFT: True World Use Case

Is it possible for NFTs to tokenize the real world? The use of non-fungible tokens in the real world is becoming more widespread and diverse. However, the implementation of NFTs is still in its infancy. Let's take a look at some of the more common scenarios.

Art - One of the most popular types of NFTs is programmable art. By enabling the tokenization of various artworks, is paving the way for the adoption of blockchain technology. When a user buys an artwork, they will be able to see the artwork's history thanks to blockchain's proof of ownership function. It is also possible to learn about past owners and the prices at which it was sold.

Music - NFTs may also be correlated with music files. Platforms like Rarible and Mintbase allow artists to mint their songs into NFTs.

Certifications and licences – NFTs can be used to create these types of licences. As a result, those who verify records by verifying paper certificates and documents will save a lot of time. They won't have to go through all of these steps if they use NFTs.

Sports – By issuing tokenized game tickets on the blockchain network, NFTs can prevent ticket counterfeiting.

Real estate – On a blockchain network, properties can be tokenized. A property is broken down into smaller bits. The assets can then be purchased on blockchain-based platforms by investors. When someone buys or sells a home, real estate tokenization often removes third parties from the equation.

Conclusion

The future of cryptocurrencies and blockchain technology is bright, and NFTs are the cherry on top. They are truly special in the blockchain world and have the potential to explode in popularity, not least because they have the potential to solve a variety of problems for various industries. Furthermore, due to the wonders of blockchain technology, users can rest assured that ownership and validity will be maintained with NFTs.