What are non-fungible tokens?
Non-fungible tokens, or NFTS, are digitally created and stored assets that have unique identifiers stored in smart contracts.
This information is what distinguishes each NFT, and as a result, they cannot be directly replaced by another token since each NFT is unique without a second of its kind. Since no two NFTs are alike, they can’t be swapped like for like. Banknotes, on the other hand, can be simply exchanged for one another if they have the same value; the holder will not notice the difference between, say, one dollar bill and another.
Why are NFTs special?
Non-fungible tokens have distinct characteristics and are usually associated with a certain item. They can be used to establish ownership of digital assets such as gaming skins all the way up to tangible goods. Other tokens, like coins and banknotes, can be redeemed for cash. Fungible tokens are interchangeable and have the same properties and value.
How are NFTs used?
Non-fungible tokens can be used to represent digital collectibles such as CryptoKitties, NBA Top Shot, and Sorare, as well as digital assets that need to be distinguished from one another in order to show their value or scarcity. Everything from virtual land parcels to artworks to ownership licenses can be represented using them.
NFT marketplaces are where they’re bought and sold. While dedicated marketplaces like OpenSea and Rarible have long dominated the field, some of the most well-known bitcoin exchanges have recently entered the fray. Binance established its own NFT marketplace in June 2021, while Coinbase revealed its own NFT marketplace ambitions in October 2021, with over 1.4 million people joining up for the waitlist in the first 48 hours.
NFT and DeFi
Non-fungible tokens are also causing a stir in the decentralized finance (DeFi) field, which is one of cryptocurrency’s most exciting and inventive areas.
Aavegotchi, an experimental firm backed by DeFi money market Aave, is one example of how NFTs are being employed in DeFi. Aavegotchis are NFT crypto-collectibles utilised in a game universe; each Aavegotchi also includes Aave’s aTokens put inside them as collateral, generating a yield on Aave. The Aavegotchi vanishes if the owner liquidates his or her stake.
According to DappRadar, the NFT space exploded in 2021, with trading volumes reaching $10.67 billion in Q3—a rise of over 38,000 percent year over year. OpenSea, the leading NFT platform, had a single-day trading volume of nearly $75 million in August, which was more than its whole trading volume in 2020.
In the meantime, NFTs began to change hands for exorbitant amounts. Beeple, a digital artist, sold a single NFT artwork for $69.3 million at auction in March 2021, catapulting him into the top-selling living artists’ rankings in an instant. Millions were exchanged among CryptoPunks, Bored Apes, and Art Blocks. With the emergence of a new market in mind, venerable institutions such as Christie’s and Sotheby’s have embraced NFTs, organizing sales and (in the case of the latter) developing its own NFT platform. The topic of how to present digital artwork has been a vexing one for art galleries.
Artists and celebrities rode the tide of interest for NFTs, and the list of even bigger names kept piling up. Snoop Dogg revealed himself as an NFT collector and sold NFT tickets for a party in the crypto game – The Sandbox; Mila Kunis and Ashton Kutcher debuted their Stoner Cats cartoon as an NFT; and NFL quarterback Tom Brady debuted his own NFT platform, Autograph.