Why Crypto World Is Going Gaga Over Non-Fungible Tokens
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Why Crypto World Is Going Gaga Over Non-Fungible Tokens

October 24, 2020      Ashna Goel

The value of any asset, be it real or virtual is estimated by the distinguishing characteristics and applications of the said asset. The above statement, however, does not apply to any US dollar bill or Rupee note when it comes to fungibility. Even the most hyped digital and crypto asset Bitcoin, is fungible. It might come off as a surprise to many that a simple airplane ticket is non-fungible. Airplane tickets have unique characters that define its sole ownership, and hence cannot be exchanged or transferred with any other ticket. 

Confused? Let’s break this down.

Fungibility and what it does not offer?

Even though fungibility sounds like a complex term, the concept, however, is quite easy to grasp. Fungibility by definition is the ability of any asset to be interchangeable with other goods or products in daily use. Sounds like a good thing! Considering that’s how a person buys his daily bread. You exchange money for goods at a certain price. But when we trade something for money, only the number of dollar bills matters to both parties, not the dollar bill itself. The dollar itself does not represent anyone’s sole ownership making it open for exchange. 

Fungibility does not offer any uniqueness or authoritative ownership to the asset, that is embedded in itself. Your entire roll of a hundred dollar bill if lost by any force you cannot prove it’s yours even if you found it. Your name is not pegged to the bill itself. The serial number on it, although unique, is completely useless in proving its ownership to a person. However, our central finance system usually works this way.

Push towards a decentralized future through DeFi 

The centralized finance system has indeed managed to come a long way. But there are many loopholes in it that have long been manipulated by the ones in power. Enter DeFi, a revolutionary vision of those who saw the potential in blockchain since its debut in 2009. Decentralized finance (DeFi) will eliminate the role of any central authority or financial organization like banks to allow and validate the regulation and transaction of monetary assets. 

Meanwhile, smart contracts that have given birth to thousands of DApps are proof enough that technology is ready to implement DeFi with a couple of improvements, of course, which will come in time. The Ethereum 2.0  is a hope for a better version of the platform itself meant to improve the scalability, now at 15 tps to thousands while moving the network from proof of work to proof of stake. Given that someday DeFi hopes to prove itself to be a better alternative to centralized finance, modifications will come in the form of opportunities like NFTs.

Non-Fungible Tokens (NFT)

 We often hear of rare items with a significant role in history or distinguishing characteristics being auctioned off at high prices. However, the value doesn’t only come with numbers and abundance. Scarcity and rarity have long played its role in the deciding value. Bitcoin is one of the greatest examples of scarcity’s role in placing it as the highest priced cryptocurrency in the market. Moreover, years old rare collectibles and art pieces are being bought for hundreds and thousands of dollars. Imagine a digital version of them. Digital art, gaming collectibles comparable to collecting baseball cards giving them their signifying characteristics based on their rarity, are characteristics of non-fungible tokens.

One of the most eye-catching events that plunged the potential and market for non-fungible tokens was the purchase of the most expensive CryptoKitty Dragon at 600 ETH, approximately $170,000 set a new high for non-fungible tokens. CryptoKitties, an Ethereum based game to pet, breed, and trade kitties, offers a unique DNA embedded in the asset, which can be passed on when mating it with another kitty. No two kitties are the same, hence it can’t be replicated or transferred without the owner’s permission. 

Why do we need NFT in the crypto world?

The answer is as simple as why does anyone invest in any form of rare artifact. A person with possession of money looks for opportunities to invest and grow in value. Moreover, we look for recognition in the ownership of the asset that represents a social value in itself. CryptoKitties is just one of the many examples, which have a social value attached to it. NFT market has capped over $2 million volume in a week. With the trending and exponentially increasing development in Dapps, crypto tokens have quickly moved on to NFTs.

Growing potential and applications of NFTs

News portals dedicated to the crypto world are flooded with news on NFTs. As recently as September 2020, a great piece of art – Bitcoin Volatility art was sold for $101,000. With many marketplaces like Enjin, Rarible, Super Rare, and many more, supporting the creation and trade of digital art pieces. According to data from nonfungible.com, the NFT market has been flourishing exponentially to $132,013,071.18 total in volume with $2,175,861.96 volume in the past week.

NFTs are establishing their worth in several sectors.

  • Digital Art
  • Gaming 
  • Collectibles
  • Virtual Assets
  • Real-World Assets
  • Identity 

Sectors like Digital Art, Collectibles Gaming, and Virtual Assets have already shown their potential in the market with legitimate statistics for proof. Whereas, Real-world Assets and identification represented by NFTs pose to be extremely promising hypotheses.  

Conclusion

With the recent advancements and technological innovations in decentralized finance (DeFi). DeFi will transform the future and integrate it into a daily lifestyle. Moreover, the new financial system and financial markets based on DeFi will offer endless opportunities for people to grow. The NFT market is one such opportunity that many have already seen the potential as a significant part of the DeFi world. 

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Ashna Goel
Ashna Goel

Ashna is a graduate from Amity University specializing in Journalism and Mass communications. She is currently working as a content writer for Agio support solutions Pvt. Ltd. She aims to provide quality content and strategy in the field of cryptocurrency and work with digital marketing platforms to deliver brand-specific strategies.