Crypto Research

Non-Fungible Tokens (NFTs)

Oct 6, 2020

As you already know, the blockchain scene is one of the most dynamic and innovative in the world. Talented software developers release dozens of new developments every day, hoping to be the next Bitcoin or Ethereum. A flourishing blockchain sector is currently that of the “Non-Fungible Tokens (NFTs)”, which had a trading volume of over seven billion US dollars last month. In today's article, you will learn exactly what NFTs are, what they have to do with digital cats, what uses they have and why it could be a future billion-dollar sector.

Definition of NFTs

Let's start with the most important thing: What are NFTs? NFTs are unique cryptographically secured tokens that (compared to fungible tokens such as Bitcoins) are not interchangeable. Thus, these tokens are unique pieces and cannot be replicated or destroyed. The ownership of the tokens, which are traded on open, decentralized marketplaces, is regulated and protected via smart contracts on the blockchain (often Ethereum). NFT's history began with an online game that allowed the user to own and trade unique “CryptoKitties” on a blockchain. The whole thing became so popular that users even caused a massive jam on the Ethereum blockchain and individual "kitties" were traded for more than one hundred thousand US dollars.

Uses of NFTs

An energetic ecosystem has always developed around the concept in which the crypto community has already implemented several NFT standards on a grassroots basis. The sector took the next step in development when they rushed into the art scene. For example, platforms such as OpenSea or Rarible allow artists to effortlessly tokenize their physical and digital art and thus present themselves to a larger audience (primary market) while property rights remain secured. The resale of the objects (secondary market) is also processed via the blockchain and allows full traceability. The tedious processes for interested buyers to determine the authenticity of an object or to find a physical storage location are over. NFTs could be a «game changer» not only for the game and art world. Physical objects can also be tokenized in order to increase the liquidity of the objects and to verify their authenticity.

What's the value behind NFTs?

In the case of “CryptoKitties”, the hype could be explained by the fact that blockchain-based trading added a new dimension to the gaming experience and thus represented added value for users. In the case of art, COVID19 has certainly given the intersection between NFT and art a boost. Due to lockdowns and the prevention of mass gatherings, artists were forced to find new ways to make their work available to the public. This enables art lovers to pursue their hobby without leaving their own four walls. As in the traditional art world, the value of an object is determined by supply and demand. The reputation and the scarcity of an object are decisive factors.

Golden future for NFTs?

We can already see that NFT tokens are being traded for several thousand US dollars (see picture below). Apparently, the tokens are of greater value than "just" being amusing crypto kitties. In order to be able to estimate the potential of the market, the interested investor can make a simple comparison: According to the statistics portal statista.com, the global physical art market is valued at 64 billion US dollars in 2019, while at the same time NFTs had a market capitalization of only had $210 million. Thus, the physical market is 310 times larger than the digital NFT market and shows how great the potential can be. At DECOM, we have a lot of fun with all the creations that the internet is producing.