Almost every day, technology companies come up with a new technological advancement that becomes the main talk of the world. These days, non-fungible token (NFT) seems to have been the main character. But what are NFTs, and how are they relevant, especially in the investment world?
How non-fungible token (NFT) works
Before we go deeper into understanding non-fungible tokens or NFTs, there is one thing that we need to keep in mind: NFTs are not cryptocurrencies. Thus, it might not be possible to trade or exchange NFTs at equivalency, Investopedia notes.
Then what exactly is an NFT? NFTs are cryptographic assets on a blockchain that has unique identification codes and metadata. These codes and metadata make every token distinct and different from one and another. On the other hand, cryptocurrencies, which come as fungible tokens, are identical to each other. This characteristic allows cryptocurrencies to be used as a medium for commercial transactions.
Where and when can we use NFT? For now, there is not much exploration of the application of NFTs. Though, Investopedia noted that NFTs are the ideal medium to represent physical assets, such as real estate and artwork, digitally due to their distinct codes and metadata used in generating each token. NFTs’ blockchain-based characteristic helps remove intermediaries, simplify transactions and even has the potential to create new markets.
Future potential in the investment world
According to Investopedia, NFTs might be able to democratize investing by dividing physical assets like real estate. Dividing a digital real estate asset among multiple owners could be much easier than a physical one.
Take for example you want to divide your real estate into multiple divisions with each part containing different characteristics and property types. There could be a part that is suitable as an entertainment complex, while another is much more feasible for a residential district. The price of one land and another is surely different. Thus, we use NFTs to assign which is which. And with that, the future of real estate trading which often comes as a complex and bureaucratic affair could really be simplified with the help of blockchain technology.