Non-Fungible Tokens are gaining more traction in the crypto market. But what exactly are NFT and how are NFT used?
We can categorize tokens into two types: Fungible Token (FT) and Non-Fungible Token (NFT). The main characteristic of fungible tokens is that they are interchangeable and divisible. Tokens like Bitcoin, Ethereum, and Cortex are considered fungible tokens, as well as various tokens in cryptocurrency exchanges.
As for non-fungible token, it contains something unique and is therefore not replicable. This unique aspect is written inside the metadata of the token itself and can be seen as a permanent, unalterable certificate of authenticity. It is particularly useful as proof of asset or ownership.
NFT can tokenize almost anything. So far, the most common use cases for NFT are:
- Gaming items (rare skins or weapons)
- Virtual Assets and addresses
- Real World assets (ownership)
- Tokenized luxury goods, e.g. wine
- Digital art and music
Let’s talk about a few cases:
Tokenized luxury goods, e.g. wine
What’s good to tokenize red wine? The process of making a bottle of red wine. from grape harvesting, brewing, packaging to delivery are all recorded through the IoT device, one by one. Because the information on the blockchain is difficult to tamper with, the authenticity of the wine can be checked and certified. Whether the source of the grapes has been contaminated or if the wine is from a certain winery, all can be traced and recorded.
Digital art and music
Existing artworks with more collectible value are mostly physical works. If you purchase from a formal company, you will surely get a guarantee with a steel seal and a laser label. In fact, the digital fingerprints for artworks are gaining attention as well. There is a commonly used art micro-jet anti-counterfeiting encryption technology. When each art micro-jet canvas is made, an anti-counterfeiting mark is embedded in the screen. This mark cannot be seen by the naked eye and cannot be reproduced. It needs to be scanned and verified through a dedicated APP.
Collectible is a huge market. Whether it’s trading cards or Jordan sneakers, there are active secondary markets for collectibles. With NFT, each collectible is unique and they can hold metadata that can identify its authenticity. No more spending $500 on a pair of fake Jordan XIII.
You may wonder, why do we need to use blockchain and its NFT technology. Simply put, NFT is digitally traceable since the ownership of the assets is recorded in the blockchain, which also prevents forgery and fraud. But it has more characteristics that make NFT the perfect technology for the job.
Hard to forge
The current digital foodprints are too easy to replicate, and it is difficult for creators or owners to claim digital rights. It is quite easy to share music and videos with others without actually owning them, or forge a fake asset identity. With NFT, digital assets created by artists or purchased by consumers can be protected and cannot be forged. Since it is difficult to be copied, it can better guarantee scarcity and ensure that the value of the asset will not collapse with the counterfeits.
Easy to trace
The data on the blockchain is open and transparent. Blockchain provides an innovative way to store contracts, patents, and other documents where the users truly have ownership of their data. This also applies to NFT. Anyone can view NFT’s source, time of issuance, number of issuances, owner history, and much other information. NFTs enable us to tokenize anything valuable and trace the ownership of it, thus building a connection between information and value.
Take gaming assets as an example, in traditional gaming, the value of the virtual treasure you buy is locked within the server of the game company. Once the game stops operating or the player leaves the game, you lose the right to use the virtual treasure. Once the virtual treasure is made into NFT, the player will obtain true ownership of the virtual treasure, and the player can freely trade in the NFT auction market, which greatly increases the circulation of the virtual treasure. More importantly, the cross-border NFT transactions can be completed within a few minutes. The transaction is cleared and the possibility of fraud is also eliminated.
The idea of “decentralization” and “user-centered” of the blockchain is still a bit too ideal. From a commercial standpoint, it is nonsense for corporates to forgo all the data and the benefits that come with it. From the user’s standpoint, the convenience brought by the big companies still excels over user privacy. However, combining the upsides of NFT and blockchain with the current technology service is a more practical approach. When it comes to information security and privacy, you can consider using blockchain; for the part that requires extreme speed, a centralized server is your best solution.
As such “Interoperability” may be the way to go. NFT offers a powerful solution to combat counterfeits while increase circulation at the same time. However, only when the public began to show solicitude for ownership of digital assets and personal data could we take a step toward a user-led world. Over time, more and more artists and innovators will use NFT as a way to protect their assets and ownerships.