The Rise of Non-Fungible Tokens (NFTs) in Crypto Space: Benefits and Challenges.

Jay Crypto

Blogger

Imagine a world where you can take ownership of digital assets, regardless of how small, and arrange them (trade, rent, gift) just like physical property. That’s the world of NFTs or non-fungible tokens. Non-fungible tokens are a new type of digital asset that is currently gaining traction in the blockchain space. NFTs have been around for quite some time, but it was only recently that they started to gain popularity.

Fundamentally, a non-fungible token is a newer blockchain technology that enables developers to create unique tokens distinguishable from others and create new use cases for the blockchain.

So as a new era begins in the world of digital assets where the internet seems to be headed towards adopting non-fungible tokens, let’s shed light on NFTs in this article.

What Are NFTs (Non-fungible Tokens)?

Non-fungible tokens (NFTs) are unique digital assets that are not interchangeable. Unlike cryptocurrencies, NFTs are not divisible into smaller units, meaning you can’t split one up to trade it for several different items. They are similar to cryptocurrencies like Bitcoin and Ethereum. Still, they differ because every crypto has its own blockchain, whereas NFTs are often issued on top of existing blockchains such as Ethereum.

NFTs are somewhat similar to traditional collectibles like baseball cards or stamps. However, the difference is that these items have a physical form, while NFTs exist exclusively online. NFTs can be used in games, collectibles, and other art and real estate industries.

So primarily, you’d use NFTs to represent something unique, like a CryptoKitty or a CryptoPuppy. NFTs even have the potential to represent physical property, such as cars and houses. 

NFTs were a $15 billion market in 2021; between 2022-2030, the market size is expected to grow at a CAGR of 34.2% in multiples categories. 

The Benefits of NFTs:

Non-Fungible Tokens (NFTs) are becoming increasingly popular. They offer unique features like ownership and scarcity, which can even create new business models.

The Rise of Non-Fungible Tokens (NFTs) is not surprising, considering that the gaming industry generates around $197 billion in revenue yearly. The gaming industry is, therefore, one of the biggest markets for NFTs since it offers an entirely new way to monetize virtual goods.

Let’s explore its benefits.

• Decentralized

Fundamentally, NFTs are decentralized in nature. Unlike other cryptocurrencies, which are controlled by a central authority, NFTs do not have any central authority that regulates them. This means that anyone can create their own tokenized assets using blockchain technology without any restrictions or regulatory hurdles imposed by governments or financial institutions on their operations or activities.

• Reduce Fraud

Another benefit of NFTs is that they help reduce fraud, especially regarding physical goods such as artworks or precious metals. This is because once an artist or manufacturer has created these items no one can replicate them  to make more copies available in the marketplace.

• Transparency

One of the benefits of NFTs is transparency. NFTs are transparent in nature as they allow anyone to verify an asset’s authenticity, ownership history, or any other information related to the asset – NFTs can be traced back to their origin!

In the past, when you bought a physical collectible item, you would have to trust the seller. You had no way to verify whether it was authentic or not. But with NFTs, you can verify the authenticity of an item before deciding to purchase it.

Another benefit is that they can be easily tracked using blockchain technology, as all transactions have been recorded on a public ledger for everyone to see.

• Building Brands with Digital Assets

NFTs allow brands to create their own tokenized ecosystem where they can set up rules for how users interact with their products and services. This enables them to build stronger relationships with their customers by creating an environment where they can engage directly with them. For example, if you’re a brand owner who wants to reward your most loyal customers, then you could create an NFT that allows them access to exclusive events or offers.

• Enhancing User Experience

NFTs enable brands to offer more engaging experiences than traditional marketing techniques such as banner ads or email campaigns – they offer a more personalized experience for users based on their preferences and interests

• Lower cost for storage and transfer

NFTs can be stored in a decentralized manner, which means that there is no need for centralized storage. This lowers costs and improves security. Moreover, transfers of NFTs can be conducted in real-time without third-party verification. This also reduces costs and improves security by preventing fraudsters from interfering with transactions.

• Increased liquidity

The increased liquidity of NFTs makes them more attractive to investors looking to sell or trade their assets. It also makes it easier for owners of particular assets to find buyers interested in purchasing them at their desired price. Increased liquidity also reduces volatility because prices move based on underlying fundamentals rather than speculation or other factors that may cause rapid price changes.

• Anonymity

NFTs are not tied to any one individual or entity and can therefore be traded anonymously if desired by both parties involved in the transaction. This is an important feature when conducting business on the blockchain since privacy is often a concern when dealing with sensitive data such as financial information or personal information

Challenges in NFT Adoption

The most prominent problem blockchain & crypto face is their inability to break into the mainstream. Non-fungible tokens may be the solution, but many challenges remain that hold back this technology from entering the mass market. Some of them include regulatory uncertainty, lack of standardization, and interoperability issues.

• Expensive to develop

A significant challenge in NFT adoption is that they tend to be more expensive than their fungible counterparts. To create a unique digital asset, a developer must spend time and money designing, developing, and marketing it. This cost is then passed on to the end user through higher prices.

There isn’t yet a dedicated platform or protocol for non-fungible tokens.Many developers have been forced to build their own platforms or protocols from scratch, an effort that can be time-consuming and expensive.

• No uniform implementation

Another one of the challenges in adopting NFTs is that there are no common standards for their implementation. This means each platform has its own rules for how to use them and what they can do.

For example, some platforms allow you to create smart contracts using NFTs. Others may not support all types of assets or transaction types. Some platforms also require users to pay fees from their wallets when they want to transfer assets from one account to another without guaranteeing that the transaction will go through successfully.

• Ownership

Ensuring that ownership can be confirmed and proven has turned out to be a daunting challenge. This requires a registry for each NFT, similar to the concept of a land registry or an art registry. It also requires digital asset management software to track all the data related to each NFT. The lack of this kind of registry makes it difficult to transfer ownership of an item, particularly if it has been sold many times over.

• Calculating NFTs’ value

Valuation is always a tricky business, but with non-fungible tokens, there are two different types of value: intrinsic and extrinsic. Intrinsic value refers to how much you would pay for something purely because it’s useful or enjoyable (think about buying tickets for your favorite band). Extrinsic value refers to how much someone else would pay for something because they believe it will increase in value later on (think about buying stocks).

• Scalability

Another challenge after the Rise of Non-Fungible Tokens (NFTs) is scalability: if you want your app to support millions of users, it needs to be able to handle high traffic volumes without significant delays or downtime. This means that storing all the data on-chain is not an option since this would create too much congestion in Ethereum’s network and also make it impossible for users with low bandwidth connections to access your app.

Bottom Line

Investors are very optimistic about the future and the Rise of Non-Fungible Tokens (NFTs), and it seems that the skepticism around digital scarcity was an overreaction. NFTs were one of the first use cases that gave us a glimpse into the potential of blockchain technology, and they will continue to pave the way for blockchain innovation in our everyday lives.

Despite numerous challenges in NFT adoption, with time, NFTs will likely start showing up in all sorts of applications, from digital ownership of physical items like concert tickets to unique digital assets like cryptocurrencies.