NFT is probably the most confusing topic in crypto out there

This article explains what an NFT is, its advantages, and how it’s valued high.

NFT isn’t a word but rather an abbreviation for non-fungible tokens. Just like a non-Fungible token, there are also fungible tokens.

To explain what a non-fungible token is, let’s start with what fungible token means. Let’s break this down a step at a time, starting with the definition of fungible.

Something is said to be fungible when it’s mutually interchangeable with something else. Inferring the value of A equals the value of B. Both A and B have the same intrinsic value.

Consider a scenario where person A and person B both have $1000, they can both swap it, and the value of the $1000 doesn’t change despite varying details like a serial no., etc. Likewise, If A has two $500 notes, he can swap them for person B’s $1000 notes, and yet the value will still be the same.

A fungible can be money (from the example above), commodities, shares, etc.

Non-fungible is the opposite of fungible. Non-fungible items are mutually non-interchangeable and don’t have the same intrinsic value.

An example is trying to exchange the first jersey Messi wore to play in PSG with the one Mr. Emeka sells at the Alaba market. These two shirts are noninterchangeable because their value isn’t the same.

A plot of land on the Island can’t be exchanged with a plot at Lekki Epe, irrespective of whether both the lands were bought for the same amount.

What is a Non-fungible Token?

Non-fungible tokens exist on a blockchain. These tokens are mutually non-interchangeable and lack the same intrinsic value. Each NFT token has a unique identifier which makes them different. No two NFTs are the same. In general, they are tokenized forms of digital assets, including Arts, Music, intellectual property, etc.

Advantages of Non-fungible Tokens

NFTs has so several advantages, let’s discuss a few here;

1. NFTs help with determining Authenticity and Ownership:

To understand the concept of authenticity, consider a scenario where there are two Monalisa art; the original and the fake. It’s difficult to distinguish which is the real and fake one, to do that you’ll need the help of an expert. The same issue is with digital assets; a person can easily duplicate digital assets like art, and one will find it impossible to identify the original from Fake.

With NFTs, you can easily verify the authenticity of a digital asset without hassle. This is achieved through a smart contract. With the smart contract, a person can easily track the history and provenance of a particular NFT, and also Creators can easily claim ownership of their art.

2. NFT removes the need for intermediate and limiting barriers:

Unlike before, when the artists had to put their arts in an art gallery to sell them, NFTs reduces that. In addition, Art galleries are highly selective, and some charge a high commission fee from creators. NFTs breaks down these barriers, allowing creators to list their work on an NFT marketplace, such as Rarible, Open sea, etc.

3. Exposing creator’s work to the global market:

NFT makes it borderless for creators’ by easily showcasing and selling their work globally with an NFTs marketplace. There are more advantages of NFTs, but we will restrict ourselves to the forenamed.

The Valuation of NFTs

The value of NFTs is driven by several factors, some of which I discuss in succinct detail below.

1. The use case: The use case of an NFTs is one of the primary drivers of its value. An example is Axis infinity, which is an NFT-based game that utilizes that play-to-earn model allowing users to earn as they participate in playing games. A solid use case like this contributes to the value of an NFT.
2. Ownership history: Recently, Justin Bieber purchased Bored ape #3001 (an NFT) for $1.3 million (500 ETH) early this year (2022). In a scenario when an NFT has a purchase history of influencers, Celebrities, who have a strong brand, such an NFT tends to be worth more. It’s the same if Justin Bieber auctions his Nft, the probability of selling it for more than he purchased it is high.
3. Rarity: This follows the simple rule of supply and demand. Consider an Nft of over 1,000 NFTs’ collection. Five of the collection have a gold medal; these five will be worth more than others (995) in the collection because of the more unique identifier (the Gold medal) that makes them rare.
4. Individual perception: humans tend to place value on things differently. What person A considers to be worth $10 can be worth Less or more to a person B. The reason for purchasing an Nft is highly subjective; it just depends on the person’s perception.

Conclusion

NFT is a very extensive subject. This article helps point out the most important factor that will get you participating and have a better understanding of the subject.

Although the NFT space is still in its infancy; there are several reasons why you should jump on it; one of such is the financial edge it has to offer. Ensure you do more research before deciding to fully participate.