The Origin of NFTs and how do they work?
NFTs or non-fungible tokens are unique digital assets that are recorded on a blockchain and given unique identification codes. These codes allow them to be collected and traded, much like a piece of art or a collectible baseball card. While there are many different types of NFTs, the most popular are JPEGs, video files and digital art – although famously, a tweet sold for $2.9 million.
Non-fungible means that the asset cannot be traded for an equivalent item as each one is unique. However, fungible tokens such as cryptocurrencies can be used for commercial transactions as they are identical to each other.
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Popularity of NFTs
The NFT market has seen dramatic growth in the last few years, with a record $17 billion of NFTs traded last year, compared with $82 million in 2020. But why are they so popular?
An Exciting Alternative to Traditional Assets
NFTs allow people to own something unique and different from a traditional asset. Gold, real estate, currencies and artwork are seen as dull by many investors seeking something more exciting and with the potential to substantially increase in value.
Great for Collectors
With so many different types of unique tokens available, there is always something out there that will grab your attention, providing buyers with an asset as well as a unique collector’s item.
Unique
NFTs are unique. There is no way to create new ones and ownership is solely yours. While the image, video or illustration you purchase may remain in the public domain for all to see, you are the undisputed owner of the token itself.
Accessible for all
One of the biggest reasons NFTs are so popular right now is that they are available to anyone who wishes to buy them. Unlike gold, shares, or investment trusts, tokens are simple to understand and easily bought and sold at this specific NFT marketplace.
As the assets cannot be replicated, their value should rise in time, offering a far more secure risk-reward ratio than other investments such as volatile cryptocurrencies.
Values are soaring
NFTs are responsible for some of the most expensive items ever auctioned and the list of the top ten most expensive tokens of all time starts at a whopping $7.67 million. However, the number one spot goes to anonymous artist Pak’s ‘The Merge’, which sold for a staggering $91.8 million in December 2021.
The Origin of NFTs
2012 saw the introduction of Colored Coins. They were essentially a small denomination of Bitcoins and despite their failure, they became the pioneer of today’s NFTs. On 3rd May 2014, the first-ever NFT was minted by digital artist Kevin McCoy. His hypnotic color-changing pixelated octagon, entitled ‘Quantum’, sold for $1.4 at Sotheby’s auction house.
However, it wasn’t until digital artist ‘Beeple’ sold his “Everyday’s: The First 5000 Days” artwork for $69M at Christie’s, that NFTs really hit the mainstream.
How do NFTs Work
Blockchain technology provides a transparent, immutable ledger that maintains a constant record of all NFTs and their ownership. By using blockchain, NFTs can be stored in a transparent way, meaning anyone can check the authenticity and ownership of tokens at any time. It also means that no one can copy your NFT or recreate it.
The Future of NFTs
While NFTs are still in their infancy, they have seen a dramatic increase in their popularity in a short period of time. As with any asset, there will be volatility from time to time, but one of the most exciting things around NFTs is their future possibilities.
Gaming
Purchasing items within online games is already taking off and many more games are beginning to introduce unique digital assets into their offerings, allowing gamers the opportunity to own a unique piece of the game. As developers get to grips with the technology, players can expect more exciting developments in the gaming world.
Ownership
As stated earlier, blockchain allows transparent and immutable ownership of assets. This technology means other things could also be transferred, bought, and sold via NFTs, doing away with time-consuming and expensive paperwork and speeding up transactions.
Real estate purchases are a prime example, but passports, qualifications, health records and more, could all be transformed through this exciting technology. Speeding up processes and providing a safe and secure way to accomplish everyday tasks.
Virtual reality gaming
Gamers can now play games to earn NFT items that can then be sold or traded on marketplaces. The success of this model has seen many gamers play full-time and make a living from earning NFTs in a virtual world and selling their rewards.
The list of possibilities for NFTs goes further still, and as the technology and wider acceptance of the assets continue to grow, they will become an even more important part of our everyday lives and investment portfolios.
