What are NFTs, discover its meaning and potential
Representing unique and irreplaceable assets and certify their authenticity and traceability with total clarity, transparency, and reliability.
In just a few years and increasingly, we come across headlines every day that highlight astronomical investments in an NFT. We are living the NFT boom with diverse, even sometimes opposing, visions, ranging from illusion to total scepticism.
In this article, we explain what NFTs are and try to offer an objective view of what they can bring to individuals, companies, and organizations, and their great potential in an already digital world.
What is an NFT?
NFT stands for non-fungible token in English, an asset or non-fungible good. NFTs are defined as unambiguous representations of assets, both digital and physical on the blockchain network.
Although they use the same blockchain technology as cryptocurrencies, we should not confuse them. Cryptocurrencies are fungible goods, they can be exchanged, divided, and consumed when used. NFTs are irreplaceable. They have no equal, so they are not interchangeable with each other, although they can be bought and sold.
We must understand the NFT as a digital certificate of authenticity and traceability of the asset it represents. To understand this, let's see how they are created and work.
How are NFTs created?
Any asset can be tokenized. Tokenizing an asset means giving it an identifier and associating it with a set of metadata in order to ensure its authenticity, identify the author, indicate its initial and purchase value, as well as the transactions that have been made from it since its origin.
NFTs are digital certificates of authenticity and traceability of the asset they represent
Therefore, we can create an NFT of any asset. A very common example is the tokenization of historical paintings or new types of digital art. But we can also tokenize a property. An NFT of a house would have a clear and immutable record with all the information about it.
But before advancing in this example, let's understand why we link NFTs with attributes such as authenticity, clarity, immutability, or traceability. Why is an NFT synonymous with security and guarantee?
Blockchain technology, the key to a transparent and reliable operation
Recording data on a decentralized blockchain ensures that the digital certificate linked to a non-fungible asset cannot be altered, falsified, or hacked.
Blockchain technology is used in both the creation and the buying and selling of NFTs. This technology proves authenticity and also provides total transparency to any process, as all operations carried out with the asset are recorded immutably through smart contracts.
Returning to the previous example of a house and imagining ourselves as the buyer, wouldn't we like to know for sure what reforms have been made since it was created? Is it true that all electrical installations have been renewed as the owner claims? Blockchain technology gives the security that these data have not been manipulated or falsified and provides a clear and transparent curriculum of the asset.
The importance of NFTs in a digital world
People and organizations have always sought mechanisms to demonstrate the authenticity of their assets and trace their history since they originated. The need for certification and traceability is not new. However, we are in a digital era where there are more and more digital assets.
As our way of being and being in the world becomes more digital, we want to have our physical and digital belongings in a digital space. NFTs should therefore be seen as a way to express our identity and have our properties in this digital world that we already inhabit. It is a reality that, whether we like it or not, is already here.
In fact, the NFT market capitalization is estimated to be over 35,000 million dollars for 2022 and over 80,000 million for 2025, according to a report by investment bank Jefferies.
Although we seem to hear about NFTs every day now, they have existed since 2017. The first NFT, CryptoPunks, was followed soon after by CryptoKitties, which became viral and raised over 12 million dollars.
Its popularity increased in 2021, when the Christie's gallery in New York auctioned the digital work Everydays - The First 5000 Days, by the artist Beeple (Mike Winkelmann), for 69.3 million dollars. Another of the most talked about news was the tokenization of the first tweet in history, this NFT was sold for 2.5 million dollars. And a digital portrait made by the Shopia robot was sold for 650,000 euros in an auction.
Overcoming Scepticism
Perhaps these examples of multi-million dollars transactions related to the art world or digital content, far removed from our daily lives and the pressing needs of companies, are what cause us to consider the contributions of NFTs with some scepticism.
However, as Pilar Troncoso, professor of the blockchain and digital innovation specialization program at the Instituto de Estudios Bursátiles, asserts, "any place where a digital element that certifies ownership is needed, will be a niche where NFTs will demonstrate all their potential".
Potential application of NFTs in different sectors
Blockchain technology uses cryptography to create an immutable record of transactions. NFTs are represented by unique cryptographic tokens that provide an additional layer of security by guaranteeing that all assets can be tracked and verified. In addition, they are designed to serve as a type of digital asset, representing rights and privileges.
NFTs are a tool for boosting traceability in any industry
Therefore, beyond the eye-catching cases in the art world, entertainment, or sports, NFTs are a tool for boosting traceability in any industry, such as food, automotive, or jewelry. They can help public or private organizations overcome challenges related to digital identity and credential verification. Philanthropic organizations have NFTs as ways to initiate fundraising initiatives. And in the financial world, for another example, NFTs can be used as collateral to receive a loan.
In our article on NFT use cases, we delve into this to understand, in Troncoso's words, why "any place where a digital element is needed to certify ownership will be a niche where NFTs will demonstrate their full potential".
What can we do for you at Izertis?
At Izertis, you will find a team of blockchain experts to help you drive your business by addressing challenges of digital identity, verifiable credentials, traceability or transparency in financing. NFTs, smart contracts, wallets... Whatever solution you need, you will have an ally with us, from the conceptualization of your custom digital product to its delivery.