The craze for NFTs, or non-fungible tokens that are nothing more than digitized assets ranging from drawings, art, music to a hypothetical brain download turned into an AI, surprised everyone. This is another example of retail investors expressing their desire for innovative assets; newer forms of digital assets in this case.
A Reuters report put the total volume of NFT sales well over $ 2.5 billion in the first half of this year and is now at $ 1.24 billion per quarter, with 10,000-20,000 new accounts being created every week will.
Indian investors are also joining the party. According to a report in the Economic Times, WazirX sold over 160 digital works of art in just one month after launching its NFT marketplace. NFTs have piqued the interest of New Age collectors and artists who now believe they will have a broader market base for their products to sell.
But what is an NFT? What do you really buy? And what do you have to know before buying? Is NFT the only token? Let’s understand a little better about NFTs and tokens in general.
What is a token
We have all used physical tokens in stores or amusement parks. We pay some money and that is “represented” by the token. This token represents your right to be served in a queue. Similarly, in cryptoversum, tokens are a piece of code for which only you have the password and represent a specific record in a specific blockchain. This token is your “proof” that you have ownership of a certain data set on this blockchain. You can transfer it to someone (from your wallet to someone else’s wallet) and just like in the physical world, the holder of the token becomes the supposed owner of it and takes advantage of it.
A token is a transferable digital asset and is a record of value from a group of records that together can represent a physical composite asset or intellectual property, or something abstract (like bitcoins). While the blockchain is the actual registry, the token you own is the evidence or claim of your property that you can keep and use.
Fungible and non-fungible tokens – what’s the difference?
There are two types of tokens – non-fungible and fungible. A fungible asset is something whose representative units can easily be exchanged. Money is a good example. Five $ 10 bills have the same value as a $ 50 bill. The same logic applies to assets represented by fungible tokens (FT) such as Bitcoin – 20BTC equals two units of 10BTCs each.
However, not all assets have fungible entities. Just as real estate developers have different prices for garden view apartments or upstairs apartments, due to the intrinsic nature of the unit, even if they are in the same location and with the same area and specifications, the value of each apartment may differ – buyers rate them differently.
Similarly, tokens that represent different “identified” sections, units, or pieces of the compound asset are referred to as non-fungible tokens (or NFTs) because each token created to represent the asset is different and represents different parts of the asset.
Examples of these tokens
Different real-life assets can be represented differently by the NFTs or FTs. People became aware of the cryptoversum with the introduction of cryptocurrencies like bitcoin, ether, etc. Almost all of the original tokens were fungible tokens, essentially because they were meant to act as a payment alternative and therefore needed the same fungible character as money.
Non-fungible tokens are a new trend. When people understood that assets could be represented, they realized that this could open up a creative range of uses that could be tokenized. And NFTs, which are specific pieces of such assets, have become a better way to break down the salable, claimable pieces or units without dissolving the composite asset itself.
This offering of non-fungible but smaller units allowed the retail audience to get involved as they can now buy a portion even if they could have bought the entire asset earlier.
Many assets can be activated and sold in tokenized form – either as NFTs or FTs. Arts, crafts, and paintings (all physical assets that have a unique value, with their duplicates or clones or copies not having the same value) are suitable covers that are made and sold as NFTs. Similarly, many of the intellectual property rights such as songs and videos that come with unique copyrights can be sold as NFTs. So it is possible that you own a specific part of a song or a specific part of a painting through an NFT.
However, NFTs may not be the right solution for all assets. This is all the more true in cases where homogeneity, standardization is a more desirable feature. As a closer example, we created a representative but standard unit called FRAX when designing the real estate market at RealX, where a FRAX represents 1 square inch of an undivided area. The reason we created FRAX as an undivided unit was to ensure fungibility. This fungibility will generate a better secondary sales market than usual. FRAX will of course be fungible tokens if and when we tokenize them.
How things are going
The opening up of NFTs as another digital asset class is an amazing development. On the one hand, it opens up economic goods and their uses, and on the other hand, it enables access to those assets that otherwise had a price barrier to affordability. This will change the usual investment matrix not only for private investors, but also for HNI and UHNI investors. That makes it a very interesting game to look forward to.
(The author, Manish Kumar, is a co-founder of RealX and GREX. The views are his own)
source https://www.bisayanews.com/2021/09/26/cryptocurrencies-nfts-are-not-the-only-tokens/
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