With so much hype about non-fungible tokens all around, are you wondering about the advantages of nfts? If yes, you have reached the right place.
If you have been keeping pace with the latest news in the world of technology, then you might have come across NFTs (non-fungible tokens). NFTs are the most recent phenomenon, which took the world by storm with a $69 million NFT sale in March 2021. Therefore, many people were quick to grab their searching glasses to discover all the information about NFTs.
The increasing passion for learning about NFTs also draws the limelight towards the advantages of NFTs to develop a better understanding of the new types of tokens. While you have the essential features of indivisibility, uniqueness, provenance, transparency, and rarity in NFTs, the benefits of NFTs encourage people to learn more about them. The following discussion helps you find a detailed overview of the advantages of non-fungible tokens to help you understand their potential.
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Non-Fungible Tokens (NFTs) – The Basics
Prior to a reflection on NFT pros, it is important to have a brief glimpse into NFT basics. NFT or non-fungible token refers to a unit of data stored on a blockchain network. The token serves as a representation of real assets such as paintings, music files, or digital art. As a matter of fact, NFTs provide a certificate of authenticity or ownership of a specific asset.
NFT creators issue them on a blockchain network that also stores the NFTs. In addition, NFT creators also have a say in determining the number of NFTs they want to issue. Subsequently, the NFT creator also has the privilege of putting up the NFT for sale on a marketplace. The new owner of an NFT would receive possession of the NFT through a smart contract.
So, you can clearly notice the benefits of non-fungible tokens in the possibility of using the blockchain to exchange or trade in real assets. NFT buyers could also re-sell the NFT to obtain profit when they deem it necessary. At the same time, NFT creators could also associate the NFTs with a royalty agreement to receive added compensation with every sale. Well, let’s not dive too much into the NFT basics now! With the unique traits and capability for digital representation of assets on the blockchain, NFTs are tailored for promising benefits. Let us shed some attention on the top advantages of non-fungible tokens.
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What are the Benefits of NFT?
There is no doubt that non-fungible tokens are a completely new type of digital asset. On one hand, you have so many striking highlights in the form of million-dollar NFT auctions, while on the other, you have one-third of NFTs selling for less than $100. Therefore, it is reasonable to wonder about the possible factors which drive the value of NFTs, and the answer is clearly evident in the benefits of NFTs.
Here are some of the top advantages of non-fungible tokens, which provide the foundation for their value.
The foremost advantage of non-fungible tokens is evident in the proof of ownership. Since NFTs are on a blockchain network, they can help in associating ownership to a single account. Most important of all, NFTs are indivisible and could not be distributed among multiple owners. At the same time, the ownership advantages of NFTs ensure that buyers are safe from the concerns of fake NFTs.
NFT critics have openly stated that people could just take pictures of NFTs and sell them or even offer them for free. Well, you can have an image of the NFT. However, it is important to ask whether you own the asset. For example, downloading a picture of the Mona Lisa from the internet does not make you its owner.
NFTs, ensure that you own the real thing and therefore have possession overvalue. In simple words, NFTs can transform the conventional norms of verifying and managing the ownership of assets. As you can find NFTs on a blockchain network, it is possible to transfer ownership of NFTs easily. Therefore, you can also find the advantage of the easy transition of asset ownership with NFTs in many real-world scenarios.
The benefits of non-fungible tokens rely largely on the uniqueness of the tokens. NFTs are created on the blockchain, thereby implying the association of unique records with them. The unique traits of NFTs showcase their potential for contributing value. At the same time, NFT creators have the privilege of issuing only a specific number of NFTs to introduce scarcity of supply.
In the case of some NFTs, creators can opt for creating multiple replicas like in the case of tickets. On the other hand, the immutability of the blockchain on which NFTs are stored also provides the assurance of authenticity. Immutability in blockchain-based NFTs ensures that they are immune to modifications, removal, or replacement. Therefore, NFTs can easily showcase their authenticity as the most valuable quality.
The next prominent answer to ‘what is the benefit of NFT’ is evident in the transferability of NFTs. It is easy to trade NFTs freely on particular markets with a wide range of options for trading. For example, NFTs could solve the problem of ‘walled gardens’ in the case of games.
Many games issue in-game items, and players purchase them to improve their gaming experience. However, the in-game items are restricted only to the environment of the games, and players could not use them anywhere else. Furthermore, players could lose their investment in the in-game collectibles or items when the game goes out of fashion.
In the case of NFTs, game developers could issue in-game items as NFTs, which players could hold in their digital wallets. Subsequently, players could use the in-game items outside the game or even sell them for a profit. Since NFTs are based on smart contracts, ownership transfers become easy by incorporating the use of smart contracts. Ownership transfers can be completed upon fulfillment of specific conditions between buyer and seller outlined in smart contracts.
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Creation of Economic Opportunity
Until now, the focus of NFT pros largely pointed towards their fundamental traits. In the present times, NFTs have found wide-ranging applications in the domain of digital content. The primary reason for the feasibility of NFTs in the world of digital content refers to the fragmented nature of the industry.
Content creators frequently encounter the concerns of other platforms gulping down their profits and potential for earning. For example, a digital artist publishing their content on social networks would also make money for the platform selling ads to the fans of the artist. While the artist gets their due exposure, it does not help the artist earn any form of money for benefits to the platform.
The benefits of non-fungible tokens could lead to the development and growth of a completely new creator economy. The creator economy would focus on helping content creators avoid the need for transferring ownership to platforms used by them for publicizing their content.
With the help of NFTs, the ownership of content is integrated into the content only. So, when the creators sell their content, the funds directly go to them. If a new owner sells the NFT, the creator could receive royalties by setting up smart contracts while developing NFTs. The original creator can receive royalties for each re-sale of the token since the NFT metadata includes the creator’s address.
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Boost Inclusive Growth
The final and most important entry among the advantages of NFTs refers to the support for inclusive growth. As NFTs bring content creators from all fields into one ecosystem, they can facilitate new avenues for inclusive growth for all participants. First of all, NFT creators can obtain the true value for their creation and interact with their consumers directly. On the other hand, buyers have the option of liquidity in different types of assets with the help of NFTs.
For example, the use of NFTs for precious metals is a prominent instance of ensuring liquidity. NFTs representing ownership of a specific share of real-world assets such as property could show the flexibility for growth. Real estate agents could issue listings as NFTs with fractional ownership of assets. As a result, multiple buyers could have a stake in a single property according to specific conditions.
Most importantly, the prospects of royalty rewards in the future with NFTs for the creators also imply prolific implications for growth in the future. While NFTs are offering prominent advantages to different participants in the ecosystem, they are also capable of some general advantages. For example, NFT pros in driving inclusive growth as exemplified by the use cases of NFTs in diverse sectors.
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The detailed overview of the different benefits of non-fungible tokens clearly shows the reasons for their staggeringly massive popularity. Non-fungible tokens are undoubtedly one of the next big things in online commerce. In addition, their advantages have also become promising selling points for different types of users. While the advantages of non-fungible tokens clearly paint a favorable picture for their future, it is important to have an idea regarding their limitations. For example, lack of regulations and uniform, universal infrastructure for NFTs creates many pitfalls in their adoption.
However, the advantages of NFTs always have the upper hand over the limitations. It is possible to address the existing limitations of NFTs with slight adjustments. For example, the implementation of fractional ownership can address the indivisibility of NFTs. As non-fungible tokens find uses in various sectors, it is important to reflect on the possibilities of leveraging their advantages. You can start learning more about NFTs and find the ways for using their advantages to ensure the best results.
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The article is written by our NFTs subject matter expert as per our latest webinar on Demystifying Non-Fungible Tokens (NFTs) presented by John Ho, Head, Legal, Financial Markets, Standard Chartered Bank.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. Do your own research!