For those who haven’t what are NFTs, the acronym stands for non-fungible token, and it’s essentially a digital label that makes one instance of a file genuinely unique. The idea is that NFTs allow artists and creators to sell their work directly to fans without having to sign with a record label or find a gallery to promote it. That way, they can keep a larger share of the profits.
NFTs are created on the blockchain, which gives them unparalleled security and a record of verifiable ownership that cannot be tampered with. It’s the same technology that has made bitcoin so valuable as a store of value.
Understanding Asset Tokenization in Crypto and Finance
Because of that, NFTs can be used to represent artworks, videos and games like Sorare, as well as luxury items, sports tickets and collectibles. They’re also attracting interest from real estate developers and companies looking to digitize their existing records, like educational diplomas, intellectual property contracts and even event tickets, potentially cutting down on resale fraud.
However, there are a number of risks to NFTs. Because they’re based on the blockchain, they’re not immune to hacking and can be subject to issues like “bit rot,” where the quality of an image or video degrades over time. There’s also the risk that a platform that holds an NFT may close down, or that users won’t be able to access their media anymore, like when Google Photos shut down and people lost millions of dollars worth of Beeple videos.