EP 43: Economic Value of NFT
Overview about NFT.
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TLDR below. This is not financial advice.
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In the past, there was almost no cost involved in creating an item in the digital world. As a result, these items have become worthless because they are not difficult to create or reproduce/duplicate.
With the advent of blockchain, scarcity in the digital world was created and it connected a part of the real world to the virtual world.
NFT is one of the key foundations of the new digital economy, powered by blockchain. NFT has been tested in areas such as gaming, digital identity, licensing, certification and fine arts. Users can even split and proportionally own items of high value.
Today, we dive into what NFTs are, what are they used for, and how a game called CryptoKitties clogged the Ethereum blockchain in late 2017.
What is Non-Fungible Token (NFT)?
Non-fungible Token (NFT) is a type of cryptographic on the blockchain that represents a single asset. This could be a virtual asset or an encrypted version of an asset in the real world. Since NFTs are NOT interchangeable, they can act as proof of authenticity and ownership in the digital realm.
Therefore, NFT has 2 properties: UNIQUE and LIMITED.
The following example will help you better understand the NFT: A $10 bill you can be exchanged for another $10 bill from someone else, assuming that it is genuine. This is a fundamental property of assets that serve as a medium of exchange. In theory, there is no way of recognising their differences (other than the money series number). However, exchangeability is not a trait in favour of collectable items.
What if we could create digital assets similar to Bitcoin, but add a unique identifier to each asset unit?
This will make each of them different from all the others (i.e., irreplaceable). Basically, this is what NFT is.
How does NFT work?
First of all, we need to understand that NFT is essential items that can be collected. Like a painting, rather than a typical token which has lots of incentives associated with it to increase buyer demand.
Therefore, valuing NFT is like valuing a real-life precious item; whoever feels it has a price, will pay that price.
Example: There are a lot of abstract paintings that are worth a few thousand dollars. Very few people understand what they mean, for example, but people still buy them.
Speaking of issuance standards, usually on the Ethereum blockchain, tokens are popular in ERC-20. But in the NFT, a lot of standards are adopted, the most prominent of which is ERC-721. A recently improved standard is ERC-1155, which allows single contracts to contain fungible and non-fungible tokens, opening up a whole new range of possibilities.
Like other tokens, NFT can be stored in a personal wallet, typically a Trust Wallet. It should be noted that NFT cannot be copied or transformed without the owner's permission - even by the NFT publisher.
What is NFT used for?
NFT can be used by decentralised applications (DApps) to issue digital items and cryptocurrency collections. These tokens could be a collectable item, an investment product, or something else.
Or specifically in the field of gaming - plowing the top racing game and picking up good items is something we have all done at some point. There are many online games that have their own economy in games, so using NFT can solve or mitigate the common inflation problem many games face.
What about the real world?
NFT can represent small chunks of real-world assets that can be stored and traded as tokens on the blockchain. This can provide the necessary liquidity for many markets that would otherwise not have a lot of participants. Such as handicrafts, real estate, rare collectables, rare whisky, rare wines.
Digital identity is also an area where NFT's attributes can be beneficial. Storing identity and ownership data on the blockchain will increase data privacy and integrity for many people around the world.
What Else Did You Miss?
Economic Value of NFT
NFTs Are Rooted In Human Psychology
Scarcity and attraction of investment
Scarcity and attraction of investment
NFT With DeFi
NFT x DeFi = NFTfi (Case Study)
The future of integration between NFT and DeFi
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In the past, NFT was valuable simply because people liked it, wanted to collect it, or found it interesting. These days, NFT has turned to DeFi to take the token to a new level. These innovations contribute to creating value for them. Despite the controversy surrounding the NFTs, they are still going strong.
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