How do NFTs Create Value? | Hacker Noon


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Let’s dive into the world of digital collectibles! If you haven’t heard of them yet, Non-Fungible Tokens are exploding in popularity. But what exactly is an NFT? And how do they create value?

What are NFTs?

A non-fungible token (NFT) is a digital token representing something unique, such as a cryptocurrency token or asset. Unlike conventional fungible tokens, each NFT is unique, as a rare collectible card.

On the other hand, Fungible tokens represent units of a single asset or utility (like loyalty points, for example) and can be traded interchangeably.

The non-fungibility of NFTs comes from the fact that they are unique digital assets that are distinguishable from one another. It means each token has its history, is recorded in the blockchain, and cannot be altered. NFTs could represent anything, including limited-edition sneakers, collectible digital artworks, virtual land in online games, or even the right to access a blockchain application.

NFTs are, obviously, different from all previous assets. But what’s most interesting is that they’re not quite “assets” in the traditional sense. They immediately create an anomaly: while they can create value and increase in price, they don’t have any inherent utility or purpose at the point of creation. Just like a cryptocurrency — the utility of which is also an academic debate — there’s no way of generating value from an NFT unless it has an audience who wants to interact with it. Measures of this interactivity come through data and metrics such as daily active users or even just raw numbers of transactions per second.

Assets can be turned into an NFT

Blockchain enables the creation of intellectual property as well as smart contracts for physical assets. A blockchain can be used to track ownership of physical or digital property by applying permanent, unalterable distributed data to that property. It can be done using a specialized hardware token or another non-internet access device.

Non-fungible tokens are different from generic ERC-20/721 tokens in that each NFT is unique, like a digital collectible or a crypto-equity. In many cases, people want to interact with these tokens just like they would with physical ones.

The first step on the road to an NFT is attaching the token to an asset in the real world, which is where we’ve had most of our progress so far.

For example, if you want to make a digital version of your favorite baseball cap, you’re going to need a genuine baseball cap.

It will significantly reduce the cost of storing and protecting valuable assets like intellectual property and real estate titles and provide a way to accurately track ownership history, something that will be critical for luxury goods companies in the future.

Here are the steps through which any physical asset is turned into a valuable NFT

1. Find a trending niche.

A niche market is a small group of people who share a common interest. If your product is useful and solves their problem, they will gladly pay for it.

So how do you find such a niche? The best way is to research what’s trending on the web. You can try Google Trends for this purpose. It shows which websites are gaining popularity in search results, so it should give you an idea about what niches are popular right now.

2. Find under-represented products

The fact that NFTs are new and different means that the people who have them have, by definition, at least temporarily risen above the din. This is why the most exciting NFT products are not the ones being hyped to death by venture capitalists and their ilk. They are the ones that succeed despite being out of favor.

3. Create your unique items

NFTs are about so much more than just buying and selling things: it’s about creating value for everyone, from collectors to speculators to game developers.

NFTs are a way of making unique digital objects that cannot be copied or taken away from you. Where Bitcoin gave us a way to have digital money, NFTs let us have digital stuff. 

4. Start selling the products on an NFT marketplace.

If you have an NFT marketplace, one of the most logical things to start selling products is. It will help build up liquidity and a community for your token. It will also generate attention for your project, which might be helpful for marketing purposes.

There are many ways to go about this, but one of the simplest is to use a third-party service such as OpenBazaar. 

What makes an NFT valuable?

NFTs create value by solving a problem that has plagued the gaming industry for years: fairness of game assets. These tokens and their platforms provide players with an opportunity to buy, trade, sell and collect digital assets. The creation of scarcity offers a new and exciting revenue stream for game developers, who don’t have to rely on selling the game itself.

NFTs are inherently scarce and can be easily transferred. This is why they have value. If they were not scarce and could not be transferred, they would be worthless.

Scarcity is what makes diamonds valuable, but diamonds are physical objects. The scarcity of an NFT is digital, which makes it easy to transfer without loss or modification.

Transferring an NFT often involves a ledger (which stores the history of transactions) and a network (which can verify the validity of transactions). Because of the way blockchains work, NFTs will always be both unique (because blockchains allow only one transaction in any given time slot) and transferable (because blockchains are public ledgers).

Factors on which the value of NFTs depends 

Perhaps the most notable quality of non-fungible tokens is that they cannot be divided. It makes them especially valuable in the world of cryptocurrency, where the divisible currency is commonplace.

This means that NFTs could be used to represent more abstract assets, such as an individual’s access to services or a claim to a share in an event ticket.

NFTs can even represent shares in non-digital entities, making them very versatile and potentially revolutionary in their ability to create alternative forms of ownership a reality.

Many factors can affect the value of non-fungible tokens; these are detailed below. 

1. Limited Supply 

There are a few reasons why having a limited supply is essential for your NFT:

It guarantees the value of each product. If you have 100 shoes available, but only ten are ever released at a time, that makes it harder for someone to create fakes or copies. 

It makes people feel like they “own” something special. There’s an inherent sense of pride that comes with ownership. 

2. Collectable NFTs

Some NFTs have been explicitly created as collectibles. CryptoKitties, for example, can only be bred with other CryptoKitties, so they’re more like cards in a game than the digital currency that can be used in any transaction.

The collectible nature of an NFT may make it more valuable because it’s harder to get. If you buy a CryptoKitty and place it in your digital wallet, it’s there for keeps. But if you want to breed two CryptoKitties together, you’ll need to convince another collector to let theirs into your wallet as well.

3. Controlled Circulation

The game developers control the addition of new NFTs to circulation. If a particular NFT is deemed rare, hard to get, or valuable by the community of collectors for that game, then the value of that token is likely to go up over time.

4. It eliminates intermediaries from the value chain.

Their holders own nFTs. If a user wants to trade an asset, they initiate a transfer. The owner can then choose to accept or reject the trade request. It is the only system requiring a broker or exchange to complete value transfers and ownership changes, speeding up the process and eliminating the middleman from the chain.

Where can you trade in NFTs?

Trading in NFTs is no different than trading in any other kind of asset, except that you do not have to own the asset you are trading. For example, if I have a cool sword in game A and want an excellent gun in game B, I can transfer the ownership of my sword to the weapon in-game B. I can also choose to sell it on an exchange.

There are two main places to trade NFTs right now — decentralized exchanges like OpenSea, and centralized exchanges like OPSkins Marketplace.

Why are NFTs relevant for marketers?

There’s a range of opportunities for marketers with NFTs. Unlike cryptocurrencies, which tend to be viewed as a store of value or a currency, NFTs will provide both utility and an opportunity to create unique experiences around highly valued objects. They could give context to an existing product or service, or they could even replace it. 

NFTs are the most important new technology since the Internet and will change more in the next ten years than the Internet did in the last ten. However, the technology is still in its infancy. There are many challenges to overcome before these NFTs can become a regular part of the industry. That is having been said, all players in the gaming industry should keep their eye on how NFTs continue to develop, as they will likely leave a lasting impact on our industry for years to come.

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