The past decade has witnessed many different unconventional modes of currencies and digital assets set to step into the financial world. With practically every miner and investor profiting from decentralised digital currencies such as bitcoin, there is a new player who has changed the digital asset industry. Non-fungible tokens (NFTs) have gained in popularity over the past year. The volume of NFTs that are traded in the market has increased by 43% from April 2021 to June 2021. This exceptional growth can be attributed primarily to their distinctiveness. Since then, NFTs have grown at an accelerating rate. According to Reuters, the proportion of NFT sales during the first 6 months of 2021 grew to $2.5 billion.
What are NFTs?
Many people are intimidated by the world of digital assets. However, understanding this market can be incredibly beneficial because there is a lot of room for financial growth. To begin, NFT is an abbreviation for non-fungible tokens. In a brief, NFTs are digital assets underpinned by blockchain technology. It often symbolises digital assets that link ownership to one-of-a-kind digital or physical goods like real estate, music, artwork, or films. NFTs are commonly regarded as modern-day collectibles. They are available for purchase and sale online, with digital evidence of ownership of any items included.
When it comes to digital assets, one of the most common concerns is security. Similar to cryptocurrencies, NFTs are recorded on a blockchain that ensures the unique nature of the asset and checks for duplicity. To get a handle on NFTs, it can help to get familiar with the functionality and economic concept of fungibility. Typically, fungible items can be exchanged with each other at ease as their values are primarily tied to their unique nature. By creating an NFT, it is possible for creators to verify scarcity and authenticity of any digital asset.
How do NFTs Work?
Most of the available NFTs are created and stored on the Ethereum network. In addition to this network, NFTs are supported with other blockchains such as Tezos and Flow. The ownership of NFTs can be easily traced and verified while the owner of the token can continue to remain pseudonymous. Different types of digital assets or goods such as artwork, video from a live broadcast, or items in a game can be tokenized. The file size of the digital item does not matter while adding the same to the blockchain.
Depending on the NFT, the licensing rights and copyrights may not be included while purchasing the digital asset. This can be synonymous with how buying an exclusive piece of art or a limited edition does not provide you the exclusive rights for the same. NFTs can have many other potential applications in consideration with the advancements in concepts and the underlying technology.
Indian Ecosystem of Blockchain Technology
Globally, there is a well-established potential of blockchain by value engagements. Currently, business strategy assessments are used to commission about 70% of enterprise blockchain initiatives. According to NASSCOM, the Indian public sector has supported and driven blockchain-based projects involving more than half of the country’s states. Blockchain applications are being identified by businesses across a wide range of industries. Although only 8% of these are in production, the majority are expected to expand this year.
Types of NFTs
Investors investing in NFTs are exposed to a variety of choices. Different types of digital objects such as videos, music, images, texts, tweets, and others can be turned into an NFT. The most high profile sales have been accounted for by digital art pieces. NFTs can also have patches of land in different virtual world environments. Some of the prominent entries of NFTs are collectables, games, event tickets, music, media, virtual items, memes, real-world assets, domain names.
Market Growth of NFTs.
NFTs were introduced into the market back in 2017. While this space was traded since then, the initial period of traction was not as quick. However, since the beginning of 2021, the surge experienced with NFTs has been unparalleled. In January, the monthly sales of NFT on OpenSea were about $8 million. However, just about a month after, in February, the monthly sales grew exponentially to $95.2 million. Such aggressive growth has been supported by 683,000 users with sales of about $396 million.
Importance of NFTs and Risks Involved
With the accelerated innovation in technology and adoption that has been observed, NFTs can potentially become the future of digital ownership. NFTs can expand to all types of possessions from digital forms such as artwork, collectables, and videos to physical forms including real estate. NFTs can be extremely lucrative for artists and musicians. With respect to artists, NFTs facilitate an easier and more rewarding method of selling art through royalty payments. NFTs also have a great potential to transform the music industry with exclusivity, royalty, and more.
In a Nutshell
Given India’s expertise in computing technology and the notion that the crypto market is at the vanguard of technological transformation, the country might substantially gain from becoming a crypto innovation epicenter. An optimal regulatory structure would be one that fosters innovation while minimizing the risks posed by bitcoin through the adoption of effective regulatory guidelines.
(By Sandeep Nailwal, COO and Co-founder, Polygon)
(Disclaimer: The suggestions/recommendations around cryptocurrencies/NFTs in this story are by the respective commentator. Financial Express Online does not bear any responsibility for their advice. Please consult your financial advisor before dealing/investing in cryptocurrencies.)