Non-fungible tokens (NFTs) also often called crypto-collectibles, unlike cryptocurrencies, in which all tokens are created equal, each non-fungible token is unique and limited in quantity.
NFTs are one of the fundamental elements of a new blockchain-powered digital economy. Several projects are experimenting with NFTs for different use cases, such as gaming, digital identity, licenses, certificates and plastic arts. Plus, they can even allow fractional ownership of high-value items.
A non-fungible token (NFT) is a type of cryptographic token on a blockchain that represents a single asset. These can be fully digital assets or tokenized versions of real-world assets. Since NFTs are not interchangeable with each other, they can function as proof of authenticity and ownership within the digital realm.
Fungibility means that the individual units of an asset are interchangeable and essentially indistinguishable from one another. For example, fiat currencies are fungible, because each unit is exchangeable for any other equivalent individual unit. A ten-dollar bill is interchangeable with any other ten-dollar bill that is authentic. This is an imperative feature for any asset that claims to act as a medium of exchange.
There are several schemes for the creation and issuance of NFTs. The most prominent of these is ERC-721, a standard for issuing and trading non-fungible assets on the Ethereum blockchain.
It should be noted that NFTs cannot be replicated or transferred without the permission of the owner – not even from the issuer of said NFTs. NFTs can be traded on open marketplaces.
Such markets connect buyers and sellers, and the value of each token is unique. Naturally, NFTs are prone to price changes in response to market demand and supply.
NFTs can be used by decentralized applications (DApps) to issue unique digital items and crypto-collectables. These tokens can be collectable, an investment product, or something else.
While virtual worlds are already flourishing, another exciting use for NFTs is to tokenize real-world assets. These NFTs can represent fractions of real-world assets that can be stored and traded as tokens on a blockchain. This could introduce some much-needed liquidity in many markets that would not otherwise have much, such as artwork, real estate, rare collectables, and many more.
Digital collectables open up blockchain technology to new opportunities, outside of conventional financial applications. By representing physical assets in the digital world, NFTs have the potential to be a vital part of not only the blockchain ecosystem but the wider economy.
The use cases are huge, and many developers will likely come up with exciting innovations for this promising technology.
Source: Binance Academy
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