What is an NFT?
The abbreviation NFT stands for Non-Fungible Token and though this sounds complicated, it is not a hard concept to understand.
The major difference between NFTs and standard cryptocurrencies is fungibility. Coins like Bitcoin and Ethereum are fungible, in which one coin is as valuable as any other at a given time. Each NFT, on the other hand, is unique (i.e. non-fungible) and holds whatever value a person is willing to pay for them.
How do NFTs Work?
NFTs work on a different token standard to cryptocurrency. Algorithmically, crypto is meant to represent monetary value, while NFTs are more similar to artwork. The NFT standard creates an individual asset each time one is minted.
It is clear to any blockchain enthusiast that people are willing to spend big on NFTs, but what makes NFTs so expensive are a couple of key traits:
- Access to exclusive clubs
NFTs Use Cases
NFTs have become exceedingly popular among game developers. In-game items and micro-transactions have grown in profitability recently, but without guaranteed protection from bad actors and corruption, gamers are paying for digital items without true ownership. NFTs are coming in as a solution to this.
Metaverse technology is another space where non-fungible tokens find a lot of use. In the metaverse, digital land and ownership is extremely important as users and communities gather in virtual spaces to shop, socialize, and work.
Some NFTs can be held to gain greater rewards when staking fungible tokens. This type of incentive is used to further keep stakers committed to the project.
NFTs - Examples
- Axie Infinity: This is a GameFi project in which you can mint NFTs from collectable items and the native AXS currency. While playing the game, you can also earn crypto through the Play-to-Earn activities.
- REIC - MetaCity: The Real-Estate Investment Club is an NFT based metaverse project that grants users access to a virtual world where real estate experts and financial professionals can meet.
- Kira: On this DeFi platform, users can deposit their NFTs directly to farm tokens (KEX) on the network.
Concerns Over NFTs
The question about why NFTs are so expensive leads to assumptions that NFTs are basically a money laundering vehicle or full of empty promises of potential future gains with no real foundation. Other people claim that NFTs are a farce because they are ultimately digital images that can be easily copied and pasted elsewhere, destroying their whole point as assets.
Though in some cases these criticisms may have some truth behind them, for the most part, they are not well-founded. Just as with crypto, a good team, solid roadmap, transparency, and utility differentiate NFT projects that hold value from those that are simple scams.