Non-Fungible Token: What can be an NFT?

The markets are experiencing a "new euphoria" with the appearance of the so-called Non-Fungible Token (NFT), which are digital representations of a physical or virtual asset, such as cryptocurrencies.

Non-Fungible Token: What can be an NFT?
NFT: Trading of crypto-assets is a new trend. Photo by Andrey Metelev / Unsplash

The markets are experiencing a "new euphoria" with the appearance of the so-called Non-Fungible Token (NFT), which are digital representations of a physical or virtual asset, such as cryptocurrencies, although they cannot be exchanged among themselves; they are used in the field of art and collectibles. The market in this area reached a value of 41 billion dollars during 2021.

So far, the disadvantages of NFTs are related to the user experience because it is difficult for many users to understand them, or there are numerous technicalities in the information. It is necessary to be clear about what we can and cannot do when creating or acquiring one.

The main drawback is that there is a presumed "euphoria" when commercializing, for example, the one with the image of a stone at 600 thousand dollars. This leads us to wonder how such things happen and how in the market there are overvalued NFTs, which creates a false idea in the public.

A Non-Fungible Token is a digital representation on a blockchain of certain assets, which can be digital or physical. This means that just like crypto-assets -such as bitcoin or ether-, they use the same technology, but cannot be exchanged for others of the same nature, so they are considered unique. They have traceability features, meaning that all transactions made with that token can be reviewed.

For example, when you have bitcoin or another crypto asset, which are fungible, you can split them. You can buy one bitcoin, 0.5, 0.25, or 0.0000075 bitcoin; that is, you can split it. In the case of NFTs it is not the same: you have it and it is one, it cannot be fractioned, which is one of the big differences. The blockchain is a technology that is decentralized in the world; blockchain and cryptography allow monetary transactions, contracts, etc., to be made securely. It is difficult to hack.

What can be an NFT?

It is important that to avoid fraud or committing a crime, those interested in participating in the world of NFTs should inform themselves before doing so. Currently, they concentrate their use mainly on crypto-art and collectibles.

Applications have been developed for those who are in charge of making digital works, which are, initially, a jpg or a high-quality photo; later they are transferred to blockchain technology through a smart contract and become NFT. It starts with an image, which is converted to the format used by blockchain technology.

NFTs are not just for crypto-art or artists, it is possible to apply them to whatever you want. For example, there can be collectibles, or if you want to create a series of digital movie tickets, each one would be a token.

While it is true that anyone could generate a screenshot of the crypto-art converted to NFT and carry it on their phone, you don't have one because it would be similar to taking a picture of the Mona Lisa and pretending you own the painting painted by Leonardo da Vinci.

Anyone can generate a screenshot to have the image, but you will not have the NFT because you do not have ownership. Others can have copies, but only one owns them. It becomes an element of authenticity because the NFT has a digital certificate created with blockchain that endorses it.

If I am an artist and I make a piece in Non-Fungible Token, I get the benefit that I can transfer it and whoever receives it knows that it comes directly from me, but also in the programming of the contract it is stipulated that every time a sale is made I receive royalties. This does not happen in the art world, in which once the artist sold his work to a gallery, from then on he had no more influence on the piece.

We need to find more real use cases, it is an area of opportunity for the future. For example, in the real estate sector, jewelry, music, tickets for shows, and so on. Now with the World Cup in Qatar, for example, it would not be surprising if the traditional stamp album becomes an NFT. This will happen in the short term and more and more companies may join in.

Source: UNAM