non-fungible tokens explained evai graphics

What Are Non-Fungible Tokens and Why Are They So Valuable?(4 min read)

From original works of art to providing proof of ownership of almost any physical asset imaginable, non-fungible tokens are fast emerging from their niche in the crypto sector and finding a visible and important position in the global market.

But what are these tokens? And why are they so valuable?

Overhyped or the future of ownership?

On January 23rd, a pixelated portrait of a “cryptopunk” auctioned for 605 ETH, worth $761,889 on the day. The digital collectable is one of only nine non-fungible tokens (NFTs) of its variety in existence.

While the price tag may seem excessive, the rationale behind the purchase isn’t dissimilar to that of traditional art collectors who shell out millions to bag a limited edition print.

Why? Because NFTs are unique by design.

These one-of-a-kind collectables are usually built upon the ethereum-based ERC-721 token standard. As opposed to run-of-the-mill ERC-20 compliant tokens, the ERC-721 standard contains unique data, meaning each token is entirely distinct.

Consequentially, unlike fungible cryptocurrencies such as bitcoin or ethereum, NFTs cannot be swapped like for like. They’re also indivisible—you cannot own a fragment of an NFT.

The inability to recreate or divide these assets provides them with verifiable digital scarcity, making them the perfect medium to link to a particular asset as proof of ownership.

Put simply, owning an ERC-721 standard token is akin to owning a diamond—no two are the same, and some are more valuable than others.

Besides the effect of scarcity, the individual value of an NFT is typically based upon three elements:

  • Utility: What the token can be used for and/or which asset it is tied to
  • Liquidity: The ability to easily exchange for cash (e.g., an NFT issued on the Ethereum network is far more liquid than those issued elsewhere)
  • Issuance and owner history: Whether the token was issued or previously owned by an influential company or individual

Speculative value also plays a significant part; like art and diamonds, an NFT is worth whatever someone is willing to pay.

The past, present, and future of NFTs

Non-fungible tokens were first popularised in 2017 by “CryptoKitties,” a blockchain game facilitating the buying, collecting, breeding and selling of virtual cats.

Allowing users true ownership over their virtual purchases, CryptoKitties became vastly celebrated within the crypto space. And soon these cutesy electronic kittens started fetching hundreds of thousands of dollars.

Since the height of CryptoKittie mania, the NFT space has moved beyond gaming to disrupt the digital art scene.

Several NFT-powered art marketplaces have sprung up in the last few years, allowing creators to put their blockchain-authenticated art under the hammer.

These online auction houses have even managed to catch the eye of celebrities and influencers such as Paris Hilton, whose hand-drawn portrait of her cat sold for 40 ETH (worth $17,000 at the time).

More recently, the bitcoin provocateur and billionaire owner of the Dallas Mavericks, Mark Cuban, threw his weight behind the NFT market after minting his very own token.

Mark cuban crypto non-fungible token
Source: Twitter

Major traditional brands are also capitalising on the space. Formula 1 has developed an NFT-based trading card game and Samsung has added support for NFT tokens to its blockchain wallet.

But the utility of NFTs extends far beyond art, gaming, and merchandising alone.

These immutable tokens are finding real-world use cases. Within supply chain management, NFTs are tackling counterfeiting by tracing the authenticity of a product from source to its end destination.

In the same vein, NFTs can be used to counter copyright claims, and ownership disputes by embedding trademarks and intellectual property rights directly into the metadata of an NFT smart contract.

When it comes to authentication, verification and proof of ownership, the possibilities for NFTs are virtually endless.

About Evai:

Pre-registrations for Evai’s upcoming rating and analytics MVP platform are now open. Sign-up today at evai.io for a free 60-day trial when the platform launches in 2021.

Evai aims to establish the world’s first independent ratings service for evaluating the true worth of cryptocurrencies. The platform combines economic research, machine learning, and AI to pioneer a new approach to crypto ratings.

Join the conversation:

Telegram ➡️ t.me/EVAIofficial

Twitter ➡️ twitter.com/evai_io

Facebook ➡️ facebook.com/Evaiio-100932841420323

Linkedin ➡️ linkedin.com/company/evai2020/

Instagram ➡️ instagram.com/evai_io

Share this article: