What is NFT?
NFT (Non-Fungible Token) is a unique cryptographic token which exists on a blockchain network but cannot be replicated. Each NFT has its own identification code and metadata. It is called non-fungible as it exists solely in singular or limited edition forms. Traditional fiat currency and common digital tokens such as Bitcoin, Ethereum and Solana are known as fungible assets as they can be exchanged for one another of equal value.
How does NFT work? What makes it different from traditional tokens?
NFTs are essentially digital files which contain a piece of data or information embedded into them in form of digital signatures making them unique or singular in nature. These files can be anything such as an image, song, tweet or data posted online and exist in form of digital assets in blockchain networks. This essentially makes NFT a public certificate of authenticity and proof of ownership of a particular asset market with the digital signature.
NFT is a token generated using the same type of programming as common cryptocurrencies in blockchain, but they cannot be used as currencies. Their key feature — non-fungible makes these tokens a unique digital asset which cannot be forged or manipulated. This makes them akin to collectibles which are purchased by users using digital tokens such as bitcoin, altcoin and stablecoins.
NFTs exist only inside blockchain environments. Given the type of data in NFTs,’ they have different values which are defined by the demand for them in the market. The unique digital signature of NFT makes them easy to identify/verify ownership and facilitates easy transfer of ownership.
Use Case Scenario for NFTs
Content Ownership — This is the most commonly found use-case scenario for NFT in today’s blockchain ecosystem. NFTs enable content creators to see enhanced profits as their content with NFTs attached allows them to sell assets directly in form of collectibles empowering creator economy.
Credentials — Private organizations and governments can use NFT to issue identity credentials such as IDs, voter IDs, passports and driver’s license etc. The unique digital signature prevents forgery eliminating duplication and corrupt ID markets.
Gaming — Online games see a huge opportunity in NFT as it opens channels to the secondary market. In-game purchase items such as characters and weapons are limited to single users traditionally. But in form of NFTs, users can resell and exchange such items in the community once they are finished using these items recouping their expenses. It also opens a collectible market depending on rare item NFTs.
Royalties — When it comes to art-related purchases, NFTs can help track fractional ownership and royalty entitle for various art pieces.
Events — Event organisers can use NFTs to issue invitations, entry passes and tickets which can also be used as collectables in form of limited edition passes or depending on the novelty and speciality of events.
Sports — Sports organisers such as the NBA sell NFTs in form of individual highlight video reels and digital artwork which has huge demand among the fan base.
Investment — NFTs depending on their value can be used in the DeFi market as collateral to borrow digital tokens.
