Cryptocurrencies like Bitcoin, Ethereum, Ripple, etc., have been ruling the trading world and Wall Street for the past few years. But over the last year, there is one thing more trending in these digital currencies: the NFTs or the Non Fungible tokens. What was mentioned in the passing has now become mainstream, with many celebrities like Justin Bieber, Eminem, and Paris Hilton endorsing it? But what are NFTs, and why is it becoming popular? Read on to know more:
What are NFTs?
Non Fungible tokens or NFTs are unique digital assets and cannot be duplicated. They are exclusive and one of a kind that can be sold and purchased online. A cryptocurrency is usually needed to make the transaction and may be encoded using the same software as those of the other digital currencies.
An NFT uses blockchain technology to link to an asset and is a unique token that is generated cryptographically. The blockchain records the transactions and is used to prove the authenticity and ownership of the digital asset. It can be used to buy or sell physical or nonphysical assets like collectable cards, music, artwork, or even real estate.
Here non-fungible means that the token cannot be swapped for something else or duplicated, and thus it is unique, unlike bitcoins which are fungible and can be exchanged for like values. Also, unlike the digital currencies like Ether or Bitcoin, which is the best cryptocurrency to invest in, the NFTs cannot be directly exchanged.
Why are NFTs Popular?
NFTs were created around 2013 when people wanted to trade digital assets and collectables other than the cryptocurrencies like Bitcoin on its blockchain. Ethereum came into the picture during this time, and applications were ported to this platform due to the smart contract capabilities. In 2017, NFTs like CryptoKitties and CryptoPunks became popular, but adoption was less for a few years after that. But now, the popularity has exploded and is believed to be due to a combination of factors, some of which are:
- The Bull Run of Bitcoin
Bitcoin has had a bull run in the past few years and was attributed to the low yield of traditional investments. Smart investors moved to crypto and got good yields, which led to alternate crypto investments like NFTs that have now outperformed even BTC. This has resulted in many new investors putting their money in cryptos.
- The launch of NBA Top Shot
The makers of CryptoKitties, Dapper Labs, launched a product called NBA Topshot in partnership with NBA. It is the best place to purchase unique memorabilia of the NBA season. NFTs were used to collect these digital collectables and remain the top source for the NFT market.
- The Monetisation of Digital Music Content
The monetisation of digital content is complex with the involvement of many parties. Due to this, there was a push for innovation, and that is where NFTs entered. It allowed artists to cut out the middlemen and empower them by having direct relationships with their fans.
- Pandemic Induced
Human beings are collectors and gatherers. As kids, collecting stamps, cards, figurines, etc., was a hobby and a matter of pride. With the entry into each stage of life, collectables changed. Now living in a virtual world, digital collectables have great value and are in the form of badges, game lives, coupons, etc. The pandemic has increased the demand for such collectables, and NFTs are the best way to make them valuable assets.
NFTs may be red hot at the moment, but it is still a relatively new technology. These digital assets have a long way to go before it becomes truly mainstream and widely accepted. Before that, the bubble may burst or become more widespread, so keep an eye out for it!