A Primer on Non-Fungible Tokens – Everything you Need to Know!

By Prasanna Chitale . August 22, 2021 . Blogs

Imagine a plot of land in a prime locality being offered for sale on the real estate market. The estate has everything that a land buyer could wish for – great area, perfect squares of land plots, good road connectivity, and promising future potential.

Let us take another example of a fine art collection being auctioned for thousands (or even millions) of dollars to art lovers. You may be wondering what is so unique about all this.

Here is an eye-opener – each of these assets does not exist in the physical world, but only as a digital file on a computer. Yes, meaning the “plot” of land is not something that you can drive or walk to, as it only exists as a piece of code (or a virtual land) on a computer or personal device.

Welcome to the world of Non-Fungible Tokens (or NFTs) – the latest FinTech offering that is gaining global popularity. What are NFTs and which technology are they built on? And what is its future market value? We will cover everything you want to know in this article.

What are Non-Fungible Tokens or NFTs?

Non-fungible tokens are an offshoot of the development of cryptocurrencies like Bitcoin and Blockchain technology. NFTs can be any form of tradeable asset in digital form. This includes virtual lands, digital arts, videos, music pieces, or even tweets and website domains.

Why are they referred to as non-fungible? NFTs are stored as a unique data unit on the Blockchain digital ledger and cannot be interchanged with other NFT. This is unlike fiat or cryptocurrencies that are interchangeable (for example, fungible assets like Bitcoin can be exchanged for another Bitcoin or other cryptocurrency).

How are NFTs created?

NFTs are easy to create on any blockchains like Ethereum and Tezos that support Smart Contracts. Currently, most NFTs are built on Ethereum blockchain including the ERC-721 and ERC-7155 standards.

What makes NFTs valuable to investors? For instance, how can a “virtual” piece of real estate be attractive to investors as opposed to physical real estate? The answer lies in the fact that every NFT is unique and non-reproducible. How does the NFT asset creator ensure that? After all, a plot of virtual land or digital art can be pirated and reproduced – or even downloaded on many computers.

This is where Blockchain technology plays a crucial part. As a digital ledger, blockchain records each digital transaction or series of transactions, making it impossible to modify an existing transaction after a newer transaction has been made. Just like cryptocurrencies, NFT ownership can only be transferred from one holder to the next.

Further, the “tokens” in NFTs have a unique ID that distinguishes them from other NFTs, thus making them impossible to reproduce or pirate. Next, let us look at some of the most popular NFTs that are in market circulation.

10 Popular NFTs

  1. Everydays: The First 5000 Days The virtual art collection from Beeple was sold for $69.3 million in 2021
  2. Decentraland The digital real estate platform has been selling “virtual” plots of land for millions of dollars since its inception in February 2020.
  3. Gucci Ghost Created by fashion designer, Trevor Andrew, Gucci Ghost is the iconic fashion collection from Gucci, that was last sold for a price of $3,600.
  4. CryptoKitties Based on the Ethereum blockchain, CryptoKitties is a video game that is centered around a unique collection of digital kitties, each with its own “cattributes” like eye color and fur.
  5. CryptoPunks Created by Larva Labs, CryptoPunks is a set of nine small-pixel-sized portraits of punky characters, which has been sold for $16.9 million.
  6. Public Land Sale The virtual land sale offering from the virtual gaming company, the Sandbox, was launched in February 2021 – and sold out its plots in less than a minute.
  7. The First Tweet Literally, the first tweet from the Twitter founder, Jack Dorsey, was sold off as an NFT for over $2.9 million.
  8. MyCryptons A Blockchain and AI-driven platform where users can buy cryptons or “funny” collectible versions of real-life public figures including politicians and prominent celebrities.
  9. Pokemon cards Backed by the real “Pokemon series” cards, Logan Paul is the man behind the Pokemon NFT that is being auctioned for as high as $500,000 on digital platforms.
  10. Sorare The global football platform where online gamers can trade in unique player cards that are backed by Ethereum.
NFTs – The Market Potential

The global market value for NFTs crossed $250 million in 2020 – and is projected to reach $710 million by the end of 2021.

As digital assets, NFTs are showing a major promise in financial products like insurance and bonds. The first three months of 2021 have seen over $2 billion being spent on NFT collectibles. The release of the Ethereum-based ERC-721 standard in 2018 is providing NFT developers the necessary tools to build better and more products.

Kevin O’Leary of the popular “Shark Tank” TV show is bullish about the prospects of NFTs in the financial market and says NFTs provide owners the “unique ability to track the provenance of a piece of digital art in perpetuity.”

The potential of NFTs is also attracting the attention of prominent celebrities including Twitter founder, Jack Dorsey, investor, Mark Cuban, and entrepreneur, Elon Musk. American entrepreneur, Gary Vaynerchuk tweeted about NFTs saying “it will be the gateway to access to those you admire.”

Prasanna Chitale

Prasanna is Head of Innovation at Verinite and member of Leadership Team. He has worked across various locations including Europe, Middle east and India on projects providing services in retail and corporate banking domain. Outside his work, he is a photographer, a traveler, and a mathematics enthusiast.

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