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The investment world can be difficult to understand, especially given the myriad asset classes, fund structures, and tax deferral vehicles available on the market. Complexity increases exponentially, taking into account previously immeasurable situations such as pandemics and negative interest rates.
Not only that. Increasingly popular technologies such as mobile payment apps, peer-to-peer lending platforms, robo-advisors and blockchain-based databases are revolutionizing the way businesses, financial transactions are managed and invested.
What Are Non-Fungible Tokens?
This leads to the topic of this article, Non-Fungible Tokens (NFT). NFTs are digital representations of assets created and stored using blockchain technology. Each NFT has a unique identification code that distinguishes it from other NFTs and prevents duplication. Each NFT is also expandable. That is, it can be combined with another NFT to form a third, completely unique NFT.
Fungible vs. Non-Fungible Assets
Let’s start with the word substitutable. Substitutable assets are assets that can be easily exchanged for another asset of the same type and value. For example, US dollar bills are accepted. You can exchange them with each other to get the exact same value. You can do the same with cryptocurrencies like Bitcoin. One Bitcoin is worth exactly the same value as another Bitcoin.
Conversely, a nonfungible asset is one of a kind. It is unique, irreplaceable and noninterchangeable. Examples include diamonds and original works of art. Each of these cryptocurrency assets has its uniqueness and cannot be replicated with authenticity. For example, each diamond has a specific cut, color, size, and grade. Two diamonds are not exactly the same as human fingerprints.
Now we can argue that there are no truly substitutable assets. After all, a handful of dollar bills inevitably have noticeable physical differences — perhaps tattered horns, ink stains, or different serial dates. This correctly emphasizes the importance of focusing on the value in use of an asset rather than its technical characteristics when classifying an asset as reasonable.
Top 5 Advantages of NFT Assets
1. Proof of Ownership
You obtain exclusive ownership rights to an NFT when you buy one. Ownership of NFT is connected to a single account because the network is open and transparent and runs on a blockchain. When you buy an NFT, you are buying intellectual property.
Finding ownership is simple because everything is recorded on the blockchain. Furthermore, it prevents the owner from stealing IPs from other individuals. Because NFTs are non-fungible, they cannot be exchanged for another NFT but can be bought and sold, simplifying the transfer of ownership.
2. Blocked Verifiable Unicity
The absolutely provable unicity of NFTs is among its most valuable characteristics. Due to their creation on the blockchain and subsequent unique record, the non-fungible tokens’ main characteristic is their uniqueness.
To illustrate the limited supply, NFT issuers only produce a certain number of NFTs; multiple duplicates are only permitted in a select circumstances, such as with tickets. NFTs built on blockchains also feature immutability (immunity against replacement, removal, and modifications).
3. Digitally Transferable
The second frequently cited response to the query “What is the benefit of NFT?” is the transferability of NFTs. On some marketplaces with a large selection of trading options, it is simple to freely trade NFTs. NFTs, for instance, could resolve the issue of “walled gardens” in games.
4. No Third Party Required
Since NFTs are using a decentralized blockchain technology, there is no need for a third party services since anyone can use the blockchain in order to create an NFT and offer it on the market.
Thanks to the Web3 login and payment services, users are able to trade their NFTs on a secondary market for major cryptocurrencies like BTC, ETH or altcoins, or even trade them for stablecoins in order to prevent price volatility. All of this can be done without a third party.
The principal trading market for all NFTs is the blockchain network, which is also where they are issued. People trade these NFTs using that platform’s money within that blockchain network. The NFT’s liquidity refers to how easily it can be purchased or sold inside that network in exchange for money.
However, swaps are frequently exchanged instead of cash in exchanges. A token or fractions of a token representing another NFT on the same blockchain are exchanged by buyers.
NFTs are an exciting creation and they are getting more and more attention as their use cases multiply. The price tags that attracted headlines were tied to a number of NFTs that ignited the flames. However, prudent investors should exercise caution when considering purchasing these assets, as NFTs are highly liquid and volatile.
Don’t buy them with the expectation of three or four digit returns. The real value of NFTs lies in their potential to transform the way markets work and improve the way we manage and control sensitive information. Here, the sky is the limit.
However, if you want to join the blockchain movement and see NFT ownership as your way to go, get started. However, do so responsibly. Don’t put a lot of money in the NFT and always try to set up low cost positions. Otherwise, you could end up in a miserable situation – financially and emotionally.
Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of EGG Finance. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.