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If you've been on social media, you've probably heard about NFTs. The hype around them is reaching extraordinary levels: for example, OpenSea, one of the biggest NFT marketplaces, has had $3.5 billion in monthly sales since the start of January, beating its previous all-time high monthly sales. But many people seem to think these 'digital tokens' are just another bubble, one that's doomed to burst. After all, why pay thousands of dollars to 'own' a picture of on the internet that anyone can download for free?
To get to the root of it, we need to understand what an NFT actually is. NFT stands for non-fungible token, which means its effectively an online certificate proving you own something. What's that 'something'? It can really be anything, from a photo to a piece of virtual land to a digital creature. NFTs aren't limited to the digital world either: someone can mint an NFT for a piece of real estate, bottle of wine or piece of artwork.
The power of NFTs is not in NFTs themselves, because they aren't inherently valuable. NFTs are just like any other certificate. Anyone can create a certificate, but it's meaningless by itself. Rather, its the asset associated with ownership of the certificate that given it value, and in the same way its the asset associated with an NFT that gives it value. The NFT component just proves you own it.
NFTs have several advantages over regular certificates though. Firstly, they're digital, making it easier to integrate them into online services. Physical certificates are cumbersome to use online because they either trade off efficiency or authenticity. People can upload photos of their certificates, making the process efficient, but anyone can easily edit a photograph to say whatever they want. On the other hand, the only way to really verify a physical certificate is to request the actual physical copy, and even then one could forge a document. However, NFT ownership can be easily verified because the ownership data is stored on the blockchain. This also means everyone has access and can verify the owner of an NFT, allowing anyone to build apps integrating them.
But more than just verification, the power of NFTs over a physical certificate is that they can be integrated directly into applications. This is most prominently seen in videogames. Take, for example, Axie Infinity, where you can purchase NFTs that represent pokemon-like characters and use them to battle against other players. NFTs not only guarantee the player is the actual owner of the 'Axie' (creature) and therefore he has the right to use it, but NFTs also allow new 'Axies' to be bred and created. NFTs thus enable the transformation of digital assets through a set of transparent rules, and anyone can verify a NFT transformation abides by those rules as the data is public on the blockchain.
So, where does the future of NFTs lead from here? In the digital market, I predict that NFTs will continue to expand until they become the standard for creating digital assets. Videogames, art, music and other creations will all become part of the 'Metaverse' - a blanket term used to refer to an integrated online world. Using NFTs will allow anyone to verify ownership in this shared world and combine assets from different producers and companies. While we might still live in a physical world, the different parts of our lives on digital platforms may become more integrated through common adoption of NFTs.
But on a wider level, I would expect NFTs to replace all physical certification in the long-term. Not only do NFTs allow physical assets to be integrated into an online economy, but they also allow ownership to be traced with much more accuracy. Even if you move homes, countries or even planets (this is a very long-term projection, so interplanetary travel may be perfected before this), you'll still have access to all your assets and anyone, anywhere, can easily verify your ownership.
So, are all NFTs valuable? Definitely not. Who knows if the majority of today's NFTs will still be around and used in 5-10 years? Just like real assets, many NFTs will lose all their value, and they are massively affected by speculation and hype. But in the long-run, NFTs are a technology that is here to stay. And at least for me, I'd want to get in on that action.
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If you're interested in trying out blockchain or looking into NFTs, I highly recommend you try and purchase something. You don't need to invest thousands of dollars to get involved in the space, even just $1 or $2 is enough to purchase a NFT and try out other DeFi applications. If you don't know where to start, try using an exchange like Coinbase or Binance to acquire some crypto, and then try and buy something with it. I would recommend using a Layer 2 solution or non-Ethereum chain, unless you really want an asset hosted on the base Ethereum chain, because transaction fees can get very expensive on Ethereum.
If you want to do more reading or stay updated on the latest developments, the place to be is twitter. You can find many blockchain analysts and innovators talking about their project on the platform. Maybe even give me a follow or reach out, I'm always open to connecting!
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