Before we look at an example of how the NFTs used, let’s first get a brief understanding of what an NFT is.
What is an NFT?
NFT is an acronym appearing all over social media daily. Many pop culture icons are becoming involved in NFTs, and this increase in popularity has led many people to ask the burning question: what is an NFT?
An NFT is a Non-Fungible Token, which lives on the blockchain (database of transactions, representing a unique asset proving ownership and legitimacy of the said asset). For example, a crypto token is fungible because it’s exchangeable for another, making it not unique.
Paintings by different artists and songs by musicians are all unique, proving every NFT is unique. An example would be the starry night painting by Vincent Van Gogh – it cant be traded due to its uniqueness.
You can, however, take a high-quality screenshot of a digital painting, but that does not make you the owner of the original, showing again, every individual digital creation is unique. Authenticity is easy to prove as a value of a particular NFT is specific to that token.
Every digital creation can be protected – with a smart contract on the blockchain – which ensures the ownership of their NFT. Within the smart contract, they can put conditions such as 10% of any future sales.
What can become an NFT?
You name it, and the chances are it can become an NFT—Pictures, in-game purchases, music, and so much more.
Paintings in the format of an NFT have been going for millions of pounds and dollars in some cases.Â
Kings of Leon are one of the biggest bands in the world, and they recently entered into the NFT realm. The band released their latest album, When You See Yourself, as an NFT. KOL are one of the first bands to enter this space. They are offering the album as a package with a vinyl and digital download for a token price of $50. The album was released – through the music and NFT platform YellowHeart. The special NFT album launch lasted for two weeks.
KOL is expanding further into the NFT sphere. They are offering more exclusive content as part of a series called NFT Yourself. This involves fans bidding on a golden ticket experience with the offer of four front row seats to the show of their choice during each tour for life.Â
KOL has already shown the vast potential of NFTs to transform the music industry. The power of NFTs seems likely to increase the control for the artist, which can only be a positive for music creators.
Real-World Assets
The potential for real-world assets to become NFTs is also possible. For example, real estate could easily be stored on the blockchain and transferred to an individual after the sale of the property – saving money for all involved.
Physical property is making its way quickly into the NFT world. Every house has unique qualities, whether bigger rooms or more extras like a swimming pool – this shows every property is unique and can make it into an NFT.Â
I know some of you will be thinking: how do I buy a house with an NFT? Well, that’s a great question. You would purchase property using cryptocurrency. Following the purchase, the NFT would stay in a digital wallet. Either Entire Asset Tokenization or Fractional Ownership Tokenization would take place—to tokenize the property.
Tokenization is a must in the process because when buying an NFT, you are merely purchasing a digital asset on a blockchain. You need to sign the final documents in real life.
I understand you want to know what Fractional Ownership Tokenization is? The best way to describe this process is to compare it to crowdfunding. As with crowdfunding, each owner may hold a single or more shares in the form of NFTs or regular tokens.
Entire Asset Tokenization is undoubtedly more complex. Most of the western world operate in real estate with documents passing through the deeds office. Therefore this process can only work if the deed becomes an NFT. Otherwise, Entire Asset Tokenization is not possible.
Many people feel deeds will eventually be able to become an NFT. However, at the moment, that is not possible. Wrapping the property into a legal entity is the only way to ensure Entire Asset Tokenization is possible – this enables the creation of an NFT token representing the entire ownership of that purchased property.
In the property NFT world, February 2022 will be remembered as the month when the first sale of a US-based house – was completed as an NFT. The house is in Florida, and the seller was Leslie Alessandra. Over 7,000 bidders attempted to purchase the property and a piece of history. The NFT eventually sold for $650,000 – showing a real-life example of the Entire Asset Tokenization that we mentioned earlier.Â
Despite this landmark NFT sale, there is still a long way to go in the real asset/NFT world – with the paperwork of the sale of Leslie Alessandra’s property needing to happen in the real world.
Example of a popular NFT
CryptoPunks is arguably the most well-known NFT since its release on Ethereum in 2017. CryptoPunks joined the NFT movement as an assortment of 10,000 unique characters. Each one differs in rarity and how people value them. Multiple CryptoPunks have changed hands for high value, with two having sold for 4200 ETH (over 8.5 million GBP each).Â
The original purpose of CryptoPunks was to show the potential of the ERC-721 standard. Each punk has differing rare features which will affect each punk and its perceived value. The power of CryptoPunks lies within its rarity, with only 10,000 being able to exist at one time – they are still a highly valued NFT.
Digital art has exploded into the NFT world. Digital artist Beeple sold an NFT of his for $69 million.
Where to invest in NFTs:
If you are interested in sampling the world of NFTs, these are some of the most popular NFT marketplaces:
Final Thoughts:
NFTs have implications far beyond the latest digital art craze. They have the capabilities to change the world we live in and how we buy real-life assets. Real-life property has officially entered the NFT space. Kings of Leon has shown the possibilities in the music world. Everything is changing. Our world is becoming more digitized – and I know some of you don’t feel ready. But we are all moving towards this NFT/Crypto utopia, so it’s time to strap in and ride this train into the new world.
Photo by Andrey Metelev on Unsplash