The cryptocurrency market moves in waves. Bitcoin remains the undisputed leader of the blockchain industry, but as major banks and investment funds accumulate Bitcoin, retail investors are always trying to find “the next big thing” that can repeat the unprecedented success of the original cryptocurrency. Now, Non-fungible tokens (NFT) can already be declared the most popular crypto trend of 2021. But unlike previous fads, NFTs are not just renowned trends; they have a unique use case and can stay here for longer. Jason Simon, a crypto consultant with years of experience, provides a detailed explanation of why NFTs have taken off in the last few months while reporting on their function.
NFTs are unique digital objects that can be interesting to collect and eventually sell in the future. They are like virtual collectible cards and, like physical ones, could one day be worth millions of dollars. They are called non-fungible tokens because they are unique cryptocurrency units that cannot be replicated.
Typical cryptocurrency tokens, such as the thousands of altcoins launched on the Ethereum network, are all fungible. This simply means that one token in your wallet is worth exactly the same as one token in someone else’s wallet. The same goes for traditional currencies like the dollar, where $1 in your pocket is worth the same as $1 in someone else’s pocket. However, the term non-fungible means that all of these tokens are unique and each of them has a different individual value. “Essentially, NFTs are digital, collectible items that can be compared to collectible baseball trading cards. A common baseball card may be worthless, but a very rare card can be worth millions,” Simon explains.
Explaining their function, Simon says,” NFTs are created as unique and exclusive blocks on the cryptocurrency platform chain chosen by the seller. This chain cannot be modified; no one can undo ownership of an NFT or recreate the exact same thing. Furthermore, anyone can create, buy or sell an NFT.”
Although many NFTs are only digital images, their ownership information also resides on the blockchain, making them difficult to copy completely. At its core, it is a kind of collectible card put in a display case, where all internet users can see it, but only one owns it. “Unlike regular cryptocurrencies, instead of buying a certain amount of currency, with NFTs you only buy one, which is equivalent to the value that the digital object acquires,” asserts Simon.
The situation changed in 2020, with the arrival of DeFi (decentralized finance) solutions. DeFi developers reinvented non-fungible tokens and soon began to find new applications for what was once considered a mere novelty. Today’s NFT projects are far more advanced than the original CryptoPunks and CryptoKitties. Thanks to smart contract technology, almost anything can be tokenized and stored on the blockchain, and the NFTs now being created can be very complex. A good example is “EthBoy,” a virtual NFT painting of Ethereum founder Vitalik Buterin. It sold for 260 ETH, equal to around $500,000 at today’s prices.
The revolutionary moment in the history of NFT occurred when Twitter founder Jack Dorsey sold the NFT of the first tweet he ever made for $2.9 million. Suddenly, everyone realized that there was money to be made from non-fungible tokens, and celebrities like Lil Pump, Lindsay Lohan, and Paris Hilton started selling their own NFTs. Even Tesla founder, Elon Musk, tweeted about selling an NFT but ultimately turned down all offers.
Perhaps even more important than individual celebrities selling NFTs is the fact that many big-name companies are now launching their licensed NFT projects. The two best examples are NBA Top Shot and Sorare, which allow people to trade virtual baseball and soccer cards, respectively.
“NFTs are becoming more advanced and complex. Currently, many companies are working on using NFTs to create blockchain-based video games, which could make non-fungible tokens even more popular,” notes Simon.