The emergence of NFT technology as a new source of wealth has drawn widespread interests of those looking into its feasibility as a new form of investment. The attention-grabbing headlines about NFTs being sold at high-end auction houses has made the technology perplexing. After all, the objects being sold are digital assets that have already been viewed and exhibited via the Internet. Netizens looking to download a copy can do so by paying minimal fees.
What are NFTs and What Makes Them Valuable?
First off, know that NFT stands for Non-Fungible Token where the term non-fungible means the asset represented is unique in form. It cannot be exchanged or replaced by another asset form that can match its value. A dollar is a fungible asset because even if traded in exchange for another currency like the GBP sterling, the values of the currencies in the financial markets remain the same.
While NFT trading is deemed as a modern concept, its origins can be likened to how one-of-a-kind collector’s trading cards are exchanged. A rare baseball card is fungible because when it is exchanged for another unique baseball card, the intrinsic values of the exchanged cards are totally different.
Although digital assets like art, virtual collectibles, in-game items, and virtual real estates are accessible via the Internet, one cannot have the right of ownership over the original copy unless he or she owns the copyright. Yet the most that a copyright can do is to give the holder the right to upload it in the worldwide web and ask some form of remunerations from those looking to use his digital creation.
NFT technology works beyond the concept of copyright because it allows the creator to gain profitably from the sale of his or her digital work. An NFT sale is always linked to a specific cryptocurrency since every NFT ownership must be supported and covered by an encrypted entry in the blockchain ledger.
NFTs as Part of a Financial Development in the Blockchain Technology
Nft technology is said to have been introduced as part of the Ethereum blockchain financial development. The Ethereum blockchain ledger stores information about the digital asset, whilst transforming it into a non-fungible token. In some cases, the digital information of an NFT includes certain conditions of the creator with regard to the sale of the asset; e.g. the creator gets to receive a 10% commission every the NFT changes ownership.
Ethereum as a digital coin are traded in cryptocurrency exchange sites. As a digital asset, it commands a selling price based on the current price index, which is in relation to the demand and availability of ETH in the cryptocurrency market.
In contrast, NFTs are sold at auction houses to the highest bidder, which denotes that like any piece of art work the price value attached to the auctioned object largely depends on the desire and willingness of interested buyers to obtain ownership of the rare and unique digital asset.
Since Ethereum’s NFT technology has been trending as a new way of investing the digital currency, other blockchain platforms have devised their own versions of NFTs.