The popularity of NFTs has exploded since the beginning of the year. Not only did one collector spend $387,600 on a video clip of LeBron James dunking a basketball during an NBA game, another one spent $69 million dollars on a work of art by the digital artist Beeple. And many in the industry believe that this is just the beginning of a long-term trend. In fact, demand for NFTs has increased 1,785% over last year during just the first 3 months of 2021. If you are looking to learn more about NFTs, now is the perfect time. Here are the Top 3 questions most beginners are asking:  

1) What is N.F.T. short for and what is fungibility?

Photo by Omid Armin on Unsplash

It's best to discuss fungibility first.

An asset that is fungible means that it can be interchanged with another asset of the same value. Fungible assets also have value when they are divided into parts. An example would be a brand new $1 US dollar bill or 1 Euro note. Those banknotes can be replaced with other equally valued, authentic brand new $1 US dollar bills or 1 Euro notes. The dollar and Euro can also be divided into cents, which also hold value.

On the other hand, assets that are non-fungible are unique, and not equivalent to any others in the world. Because of this, they can have unique valuations. A real-world example of a non-fungible asset could be a concert ticket in a venue with no standing room. The ticket grants the owner access to a specific seat location, and the ticket has no value if it is divided into parts.

This brings us to what N.F.T. is short for.

NFT is an acronym for Non-Fungible Token. NFTs are digital assets that are created to have a set of attributes that make each one unique, so no two of them are exactly alike.

Related reading: What is the difference between a crypto coin and a crypto token?

The fact that NFTs are non-fungible means they cannot be used as currency, and they should be valued differently from cryptocurrencies. In fact, it's common for NFTs to be valued differently from each other based on supply and demand.

2) What are the use cases for NFTs?

Although their adoption by the general public has just started, there are many cases for NFTs. They have the potential to be used as tickets for travel or for events, and even for digital identity.

Here are some recent real-world examples that have launched successfully:

i. Art and community rewards

Photo by ActionVance on Unsplash

American band Kings of Leon sold three types of NFTs to their fans this past March:

• audiovisual art tokens
• album package tokens that allowed one download of the band's latest album When You See Yourself in their choice of digital format.
• golden ticket tokens that not only included the album package, but also provides the owner with special perks such as, but not limited to, 4 guaranteed front-row seats to any Kings of Leon concert during each tour for life, bags full of the band's merch from each concert, and opportunities to meet the band in person.

These NFTs offer utility as art, as access to potential future benefits/perks offered by the band, and in some cases (golden tickets) access to the band themselves for fans!

Artists are beginning to realize the potential of being able to sell their work directly to supporters, and bypass a lot of the so-called "middlemen" in the market. Through smart contract coding, there's even the potential for an artist to receive a percentage of all future re-sales of their NFTs. I'm confident that we will see this business model start to flourish over the next few years.

ii. Gaming

Screen cap - Image by The Sandbox

The Sandbox is a gaming metaverse that is currently selling a variety of NFTs to be used on their platform. Among them are structures, vehicles, weapons, and LAND tokens, which can be thought of as digital real estate.

Other blockchain gaming platforms that integrate NFTs into their gameplay include Alien Worlds and R-Planet. Not only can you collect NFTs for use in these games, but playing the game itself can earn you cryptocurrency!

iii. Crypto collectibles

Screen cap - Image by NBA Top Shot

Remember the $387,600 LeBron James dunk? That is an NFT from the NBA Top Shot platform. We are starting to see some adoption of digital assets in the sports collectible world. Mark Cuban, owner of the NBA Dallas Mavericks and star of the TV series Shark Tank, has stated that younger collectors have severed the connection between physical and digital assets.

Other examples of crypto collectibles include cryptomonKeys, and Robotech (anime) NFTs.

3) Why do NFTs hold value?

Image by Reimund Bertrams from Pixabay 

This question applies both to NFTs and also to cryptocurrencies in general. Many critics argue that they have no tangible value, and their value is dependent on whether someone else is willing to pay a higher price for it.   There are many reasons why this type of thinking is outdated, but I'll provide two of them.  

First, the expectation that someone will pay a higher price than the previous purchase price is a common reason why many individuals buy antiques, art, or even sports memorabilia. These are all asset classes that the insurance industry caters to, and they all also have industry-accepted methods of value appraisal.

Second, I'll refer to a quote from Robert Herjavec, also of Shark Tank fame.  

There's a great movie called The Tulip Wars, and these guys are selling tulip bulbs, and the kid says "Why is it worth, this....", and the guy says to him, "Well because someone is willing to pay for it,".

So why is cryptocurrency worth what it is...it's because someone's willing to pay for it, - Robert Herjavec on BNN Bloomberg in 2017

Just because you or I do not feel an asset has value does not necessarily mean there is no demand for it. The bottom line is that there will always be markets where an asset that is scarce will rise in value because someone is willing to pay for it. 

Some of the biggest reasons I like to collect NFTs are because blockchain transactions will verify that I am the owner, and because my digital assets are easily portable. There's no need to store these collectibles in my home, freeing up a lot of space. There are also marketplaces where I can often easily find out what their current value is, and sell them with minimal effort.

For up-to-date information on other interesting NFT platforms and unique content curated by me, please follow me on Twitter: @CryptoWordsmith

Thanks for reading, and stay safe! If you would like to support my work, please hit like 👍 and follow me on Publish0x! 😊

Cover photo: Screen cap - Image by Business Insider

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