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Tata Capital > Blog > What are Non-Fungible Tokens?

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What are Non-Fungible Tokens?

What are Non-Fungible Tokens?

The value of anything increases when it is not replaceable or scarce, isn’t it? In the digital world, non-fungible tokens are created for those assets which are not replaceable. For instance, in the beginning of November, Amitabh Bachchan’s NFT collection called ‘Madhushala’ received bids of around $756000 which is the highest-ever in India as at the end of November 2021.

What are Non-fungible tokens?

Non-fungible tokens are commonly known as NFTs which are digital assets. These virtual assets represent objects from the real world, especially artistic objects which are irreplaceable. The word non-fungible means something that cannot be replaced with anything else. While other digital assets like Bitcoin, Litecoin, or ether others are replaceable with other coins but NFTs are not. Though they have the same encoding as other cryptocurrencies they are different.

NFTs are becoming popular in recent years though they are present since 2014. The popularity of NFTs is increasing due to the ease of buying and selling digital artwork using these digital tokens.

How does NFT work?

NFTs exist on Ethereum Blockchain. Ethereum blockchain as you may know is a distributed public ledger that records transactions’ details digitally. These NFTs are created or to be specifically ‘minted’ from digital objects. These objects can be both tangible and intangible. Some of these objects are like any work of art, collectables, GIFs, Designer sneakers, videos highlights, sports highlights, and even music.

Even if you do not believe it, NFTs can be created from tweets on your Twitter account. Yes, that is even possible. The co-founder of Twitter, Jack Dorsey, earlier this year in March, sold his first-ever tweet in the form of an NFT for a whopping $2.9 million. So, that is how these NFTs work, it is like buying that one object which has no other copies but you get it in digital format. The unique data used in minting the NFTs make them easy to verify and their ownership.

Additional Read: Constant Changes in the Income Tax Structure Highlight the Need for Wealth Management

How are they different from Cryptocurrencies?

While both cryptocurrencies and NFTs are minted on blockchain technology, the use of nature makes them poles apart. While Cryptocurrencies are traded, NFTs cannot be traded as they are not replaceable like crypto coins. Cryptocurrencies are fungible tokens while these are non-fungible tokens.

What are the uses of NFTs?

These days content creators are high in demand but most of the content is in digital format. While the demand is high, recognition is very less. NFTs allow these artists to monetize their creations. For instance, how many painters do you know? Very few rights, only them, whose artwork has been popular for ages. However, many of them have exceptional talent but due to the unavailability of resources to sell their artwork never get recognition. With NFTs, they do not need to wait for getting their artwork sold at any physical auction. They can sell it online directly to the person who wants to buy the same. This helps them earn higher profits than they could have earned in the physical auction. There are ways to generate income through royalties if their artwork is resold to someone else.

Additional Read: How Wealth Management is Evolving with Technology

Conclusion

In the age of digitalization, NFTs are providing the right ground for artists and content creators to showcase their skills and talents in the easiest way possible. NFTs are not only bringing them money but recognition that they crave the most.

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