NFTs - Tokenizing The Tangible And Intangible

By Tarusha Mittal, COO and Co-founder, UniFarm

Non-fungible tokens (NFTs) are distinct tokenized assets based on blockchain technology. Most of the NFTs are built on Ethereum ETH/USD and are customizable by way of smart contracts, that is, pre-decided coded conditions that need to be met before the transaction can be processed on a blockchain. These smart contracts contain all the conditions of the transaction which are immutable as is an inherent characteristic of the blockchain ecosystem. 

Blockchain technology has seen a considerable rise in the past couple of years which led to an accelerated revolution of the space with decentralized finance, decentralized applications, digital assets, non-fungible assets, etc, becoming common names of the industry. 

With the development of these new names, there have been numerous opportunities for users to increase their ownership and financial resources through decentralized financial systems including asset tokenizations or non-fungible assets (NFTs). These unique assets have garnered enormous traction in 2021 to the extent of managing to generate trading volume upwards of $10 billion in Q3 of this year. Google trends also recorded a new high in global interest for NFTs which has increased 100x since last November and India has been a contributor to this increased number. 

The sudden rise of NFTs

2017 saw the rise of blockchain technology again with Ethereum gaining prominence over bitcoin-based platforms as Ethereum promised application-based development of the technology. In the same fervour, NFTs began their subtle rise too. 

With the invention of smart contracts, there were ample opportunities for innovators and creators in the blockchain space. These innovations led the way to a sophisticated as well as accessible blockchain world where non-native crypto users could enter and interact freely. The current wave of web3 which includes NFTs and asset tokenization platforms have been a subsequent extension of these innovations. 

From CryptoKitties being launched in October 2017 to Twitter experimenting with a personalized NFT avatar feature, the NFT along with the web3 space has successfully penetrated the traditional markets and is moving towards mainstream adoption rapidly. Various actors, musicians, entrepreneurs, artists, and other creators are starting their journey into the NFT world as it provides them with a platform to leverage their content for revenue generation or for providing exclusive perks to their followers. 

Apart from providing an alternative revenue stream to creators, NFTs are proving to be viable financial instruments too as real-world assets are being tokenized as NFTs.Furthermore, with the evolution of metaverse, NFTs have newfound potential to tap into, for instance, the Coca Cola NFT auction that fetched more than $575K. Apart from the commercial sectors, NFTs are also finding their niche in intellectual property and real estate. Both the sectors can benefit immensely from incorporating blockchain technology and moving towards NFTs to prevent cumbersome paper trails and ensure smoother supply chains and verification processes.   

Inside the NFT craze

Due to the developments of dApps, DeFi, NFTs, liquidity pools, yield farming, etc, users have numerous opportunities to interact with the sector. Following the same trend, NFTs too has proven to be quite popular with the crypto community, mostly because of the million-dollar transactions that had gathered ample attention during the early days, but the technology behind these assets has certain useful advantages. 

• Authenticity 

NFTs, also known as Non-Fungible Assets are based on authenticity and uniqueness or rather, non-fungibility. Blockchain technology is immutable and secure by nature which ensures that the NFTs built on the technology are authentic, verifiable, and traceable. 

• Ownership 

NFTs are proof of ownership. Each NFT is distinct and is built on a customized smart contract specific to that particular transaction. Furthermore, it has its own associated records and can be traced back to the owner, creator, or buyer with ease and transparency.  

• Fair Compensation to Creators 

NFTs are easily transferable and can be designed to include a fixed percentage of compensation for the creator every time the NFT is transacted or changes hands. This ensures that the creator of said NFT gets fair compensation for its creation while the buyer enjoys the ownership rights to it, all without the interference of middlemen or any administrative processes.

 

NFTs penetrating mainstream markets

These tokens have managed to steadily capture and establish themselves in numerous industries. Numerous global artists, musicians, actors, and corporations have explored the NFT market to diversify their product offerings.  Through various NFTs offering exclusive rights and assets, creators get the opportunity to be creative and have autonomy over their merchandise and the subsequent revenue earned. 

• Gaming

The gaming industry has been one of the early adopters of this technology. NFT-based in-game rewards, items, collectables, etc, allow the users to own exclusive items through secure transactions and further accelerate mainstream adoption of NFTs. 

• Collectables 

Various celebrities across the globe have entered the space with special NFTs of their content or have created NFTs to provide their fans with exclusive original content at a cost. This has ensured that there are no fraudulent transactions and the creators are compensated fairly and directly. 

• Digital Art

Another early use case of NFTs, digital art, has been the key driver behind the mainstream adoption of NFTs. By selling their digital pieces as NFTs, artists opened up new revenue streams that were more direct and involved less administrative hassles. 

• Entertainment 

The entertainment and music industries have now started entering the field with more fervour as more and more celebrities are exploring the space to tokenize their content and get acknowledged by their fans directly. 

• Investment and Financial Sector

NFTs have been viable investment instruments as well and have provided a platform to connect the physical and virtual world. Product offerings such as digital gold, silver, and other tokenized assets to increase personal wealth and diversify portfolios has been gathering adequate traction among investors eager to explore crypto markets.   

In India too, NFTs have started making ample noise. Twitter itself reported that conversations around NFTs in India have increased 43% in July 2021. Various Indian crypto exchanges have launched their own NFT marketplace and have received positive reactions from Indian crypto enthusiasts. One of the earliest crypto exchanges in India, WazirX has minted 3200+ NFTs since its marketplace launch in June 2021. 

Today, various artists, musicians, gaming corporations, entertainment firms, and other traditional corporations are vying NFTs as their next big venture as NFT has gained adequate popularity, typically among the younger audience. Through exclusive collectables as well as content, NFTs have created a means of alternative revenue stream for the creators globally. These tokenized assets have promising potential to revolutionize the asset space with innovative ways of investing in tangible and intangible assets, alike.