March 23, 2021 | AtoZ Markets – This year the cryptocurrency market has certainly seen an influx of activity that has provided a lift in most top assets in 2021 thus far. However, it is not the only thing that has been grabbing the attention of the media in recent months.
In mid-March Christie’s a global auction house said that it had auctioned off a digital collage called “Everydays: The First 5000 Days” by an artist named Beeple for nearly €70million. Then, later in the month business mogul Elon musk declares he would sell a tweet of his as an NFT, which contained a song about NFTs.
Bidding for Musk’s tweet exceeded €1m but has since come back and tweeted “Actually, doesn’t feel quite right selling this. Will pass”. This is not the only incidences, sites such as NBA Top Shot have NBA cards selling for more than €200,000 apiece.
Although it may sound bizarre, the NFT or crypto-collectibles arena is explosive and is a no joking matter. So, let’s take a deep dive into NFT what it is and why people are talking about it.
What is an NFT?
Tokens can be categorized into two types: Fungible Token (FT) and Non-Fungible Token (NFT). Fungible Tokens which include names like Bitcoin and Ethereum are characterized by their interchangeability & divisible nature.
On the other hand, NFTs are unique and cannot be replicated. The unique aspect of these tokens is done using blockchain technology and can be seen as a permanent certificate of authenticity.
What is Fungibility?
Fungible assets simplify the exchange and trade processes. Fungibility implies that two objects are identical in specification, meaning individual units can be equally replaced. Money is a prime example of fungible assets. For instance, €1 can be divisible. If you own fungible assets you can easily exchange them for more assets alike.
NFT Use Cases
Despite NFTs being able to tokenize almost anything, the most common items include:
- Digital art or music
- Collectible items
- Gaming objects
- Tokenized Luxury Goods
Within the digital art domain, we have already mentioned Christie’s. This specific auction fetched the highest price for any online-only auction. The event was home to about 22 million people at the final moments of the bidding process, with bidders spread across 11 countries.
Others have also joined the craze for NFTs. Twitter CEO, Jack Dorsey was among the players to get in on the action. Similarly, to Musk, Dorsey’s first-ever tweet “just setting up my twttr” was auctioned online and bids reached an extraordinary €2m. Proceeds of which were promised to a charity.
NFT vs Bitcoin
The main character difference between NFT assets and BTC is that bitcoins have a finite supply and are fungible. NFTs are unlimited and non-fungible. NFTs can appreciate in value but can never be interchanged for another NFT.
Why are NFTs Being Valued?
The significance of NFTs is their ability to securely value, purchase & exchange crypto/digital art using a digital ledger.
They first graced the marketplace through online gaming, followed by Nike’s patenting of its authenticity, CryptoKicks, and from here we have seen a string of users embracing NFT valuation.
The Blockchain allows the NFTs to be tokenized and ownership of the assets is then safely stored using a decentralized, open-source digital ledger that features smart contract functionality. Like with Bitcoin the traditional role of the middleman is now digitized.