What are NFTs? Non-fungible tokens are non-interchangeable digital assets that are unique amongst one another. In other words, each token is unique. They cannot be separated into smaller units, nor can they be interchanged with other tokens. Even if you’re not a fan of crypto, this is a concept that you need to understand. After all, it’s the basis of how many modern blockchain projects run and operate.
To fully grasp the concept, here’s the comprehensive definition of a token.
An NFT token represents a digital share, which is a part of an asset or enforceable legal contract. The token is designed to represent value and utility. Over time, new tokens are created by the protocol, which generates further utility and value. A token is an electronic representation of an asset or a contract.
The term ‘token’ is a term that has been used in the mass market since the 1980s. Companies have been unable to find a replacement for the old way of valuing assets. In the past, everything was valued as it related to its cash flow. Assets and projects that require significant technical know-how, as well as extensive financial backing, just can’t be implemented with these types of assets as they aren’t scalable. However, that is no longer acceptable. Because of the current uncertainty in the social and political climate, the value of assets is being based now on their potential future value. That’s where Non-fungible tokens come into play with centralized marketplaces and financial service providers.
How can we have decentralized digital instruments that will enable decentralized control?
NFTs (non-fungible tokens) will enable a tipping economy. To explain, we will explore three core components that support the service. These components are liquidity, decentralized control, and exchange.
When we talk about decentralized control, we mean that users will be able to create smart contracts that are attached to other contracts. For instance, there’s a currency contract which the custodian uses to hold X tokens and manage their transfer.
The other half of decentralized control is liquidity. Currently, the tools to create, trade, and store asset-backed tokens are centralized. In the future, we will have liquidity on a blockchain.
And lastly, NFT tokens cannot be separated or exchanged with other tokens. For instance, if you have 10,000 NEO and want to buy 10,000 ETN, you cannot use 10,000 NEO to buy 10,000 ETN because they are all different assets.
By having digital assets with liquidity, we will be able to operate a tipping economy with decentralized control.
It's important that you understand the Non-Fungible Tokens concept before applying it to your projects. The concept applies to almost all projects. For example, say you are a company in the entertainment industry. You would create digital tokens for distribution. This allows fans to express their appreciation by literally buying the “rights” to their passion. Companies can also earn interest on these assets if they hold on to them. It enables a company to create highly liquid digital assets that can be used for securities, rewards, credit, and interests.