The popularity of cryptocurrency has taken the whole world by storm, especially in Africa. In this article, I shall be discussing NFTs and how they are being projected to be the next big thing. NFT stands for a non-fungible token; you probably might be hearing this for the first time. This is a somewhat technical subject area but I will do my best to make it simple for you to understand.
Basics Of Cryptocurrency
There is no way I can begin to talk about NFTs without doing a sort of recap on cryptocurrency. What is cryptocurrency though? A cryptocurrency is a form of payment or digital (or virtual) asset that can be used as a medium of exchange. Think of it as fiat currencies (e.g. US dollars, Pounds, and so on) but having a totally different set of attributes and operational protocols. Examples of cryptocurrencies are Bitcoin, Zash, and Stellar lumens, just to mention a few.
Cryptocurrencies operate using a system called a blockchain. Blockchain offers 3 core components namely, decentralization, transparency, and immutability. This simply means the system upon which cryptocurrencies work involves a worldwide network of computers that store a non-centralized, secure, unalterable, and transparent record of all transactions. In short a blockchain is a record of data stored on numerous computers networked across the world.
3 Foundational Principles For Understanding NFTs
Before getting into what NFTs are you must understand these 3 things I am now getting into.
You need to understand the basics of what value is. Broadly, value can either be subjective or objective. To understand what objective value is I will cite the example of oxygen or in essence the air we breathe. Despite who you are, where you come from, and a whole host of other metrics, the importance of air to breathe is more or less similar to anyone on the planet. That is a perfect accentuation of what objective value is.
Then we have value is subjective or subject value. Subjective value usually connotes that something’s value varies from person to person depending on several factors some of which are what someone believes and what someone prefers. For example, a piece of art worth US$500000 is of course pricey but might be of value to one person and be worthless to another person.
In the simplest of terms, an asset is something of value. It can be financial, physical, digital, and abstract, amongst many other things. In essence, if some form of income can be realized from something it can be deemed an asset.
We can break down assets into two broad clusters namely, fungible assets and non-fungible assets. A fungible asset is an asset that can be exchanged for or replaced by another of similar or like nature. Here is a simple example: if you have a US$5 bill and I also have a US$5 bill we can exchange those bills and still have the same value. That is the essence of this fungibility that I am talking about here. The same applies for digital currencies i.e. cryptocurrencies as well – 1 Bitcoin is equal to 1 Bitcoin.
So a non-fungible asset is something that cannot be interchanged or is indivisible. For example, you can have a broiler chicken and I have a broiler chicken. Even if we exchange those seemingly alike items we will end up with different value because no two broiler chickens are the same. You can also consider the example of two pre-owned vehicles; they can never be the same. That is what non-fungibility entails.
This is a digital or physical item that can represent or be exchanged for a service, value, or utility. Thus when looking at blockchain a token can entail a currency or store of value, amongst other things. Bear in mind that the value of a token stems from the asset that it represents. Think of something like a ticket to an event with an admission cost of US$250. The ticket is virtually not worth US$250 (it is just a piece of paper) but what it represents is where the value comes from. Another relatable example is a gift voucher.
What Is An NFT
I am sure you are now at a place where I can talk about what an NFT is. A non-fungible token is a digital representation of a unique asset that cannot in itself be traded for or exchanged with a similar non-fungible token. This means an NFT is unique and there is none other similar to it i.e. no two NFTs are the same. Basically, NFTs allow people the ability to digitally assume or give ownership, to manage, gain or give permissions, and or transfer assets.
Bear in mind that the asset can be digital or an actual real-life one. Common examples of NFTs are tickets to events, virtual properties, digital art, or title deeds to a real-life say, house. The list is ever-growing though. Get this clear though, NFTs get their essence and functionality from blockchain technology. That is why initially briefly explaining cryptocurrency and blockchain was vital.
The Future Of NFTs
NFTs offer some interesting applications moving forward. Any industry can actually be revolutionized by NFTs. For instance, NFTs can find their use in the entertainment and film industry where people can curb copyright violations. Obviously, the other huge application will be the use of NFTs in trading physical assets e.g. buildings, land, and so on. Any physical item of value on this earth can be tokenized through the use of NFTs.
So that is the bit about NFTs; quite an interesting subject. Fun fact: to date the most expensive NFT ever sold was a piece of digital art that was sold for US$69 million. To get a feel of what NFTs are by looking at actual examples kindly go to OpenSea. OpenSea is an online marketplace where people can sell, buy, or trade NFTs.