What Is Non-Fungible Tokens And Why Are They Important To Crypto Collectors?

NFT Mar 31, 2022

Non-fungible tokens (NFTs) are blockchain-managed digital items with a unique identity and ownership. One example of an NFT is a virtual collectible, such as a rare pet or playing card. While another might take the form of a ticket to see a concert or even proof of ownership for a house. “NFTs are like little digital bricks that can be stacked, swapped, and moved around the blockchain (or maybe even the warehouse where your physical NFTs are kept),” explains Michael Vitaly, founder of asset management app Prosper. “When you think in terms of assets, like collectibles or artwork, these are exactly like Bitcoin — you receive ownership of the asset and instant transfer of ownership are transacted via blockchain.”Why would anyone need digital assets? It all comes down to control. When you own a piece of real estate through a trust, you have a piece of paper (a trust set). You assumed all the risk of those assets when you purchased them, and you feel confident that you would manage them well. With NFTs, there’s no putting the proverbial “egg on the face” of your assets. You don’t need to affect your asset manager or trust (or you can hire a third-party manager with access to some of the basic assets on the blockchain). There are different asset types on the overall NFT blockchain. Some essentially represent pieces of real estate, like a piece of real estate. Other assets use blockchain to act as a status symbol (with things like cars and clothing), to transfer information between entities (think domain names), and to transfer value directly (such as a share in a digital sports league, a share in a crypto marketplace, or owning a piece of a small portion of a larger media company).In some cases, they can act as a shorthand way to declare personal wealth, particularly in part or whole over the web.

How NFTs WorkTwo types of NFTs, permanent and temporary, exist. Properly deployed, permanent tokens are essential to avoid risk when lending out NFTs. An NFT invested in a permanently-hoarding platform further protects the investors’ existing holdings. But unlike Bitcoin, which operates as a currency and is not interest-based, for NFTs to function properly, any investment must be backed by precious metals or another stable asset. This means the investment usually has some or all of its value tied up in equity, or the right to a share of the asset regardless of any appreciation or decrease in the value of the metals. If you bought a share in an up/down digital stock, for example, you might get a fraction of a share in the company’s future earnings. If the company hits a home run, you might get a buy-back of that share or additional shares at a discount.

Unlike physical assets — such as gold, silver, or mined minerals — NFTs can’t be mined. The motivation for investing in NFTs is profiting from ownership, while the true value and risks become apparent when analyzing the level of control needed to profit from them.
Why NFTs Matter Today a smart property business owner, you should think twice before putting any online asset, such as your NFT company, on your hard drive. As it relates to NFTs, that’s because today’s smart contract and blockchain systems are the first options for participating in asset management without being directly involved. Scaling and protecting this type of asset management business model will certainly demand new and better legal and compliance tools for investors. Investing in NFTs is easier than it sounds on average, investors can buy an average of 1 million pieces of real estate, according to the Deutsche Bank Global Asset Management Company’s Market Opportunity Report 2020. Not counting crowdfunding and other types of investment, this equates to roughly $250,000 invested in real estate and other assets to maintain net worth. Just to keep things in perspective, real estate in 2020 would be worth $315.6 billion, which would generate a return on investment (ROI) of just 2.06%. Compare this to investments in NFTs, which can potentially rise to $4.45 billion, or the entire annual GDP of Scandinavia. Looking at it another way, investing in only a few percent of the world’s assets would produce an astronomical return.

Why buy an asset with a 7% ROI? As for good reason, NFTs are in high demand: They’re the hottest asset class currently. There are more than 6,000 NFT companies in the market today according to Wellings Global Realty, and 3,500 different tokens are available. These assets can range in price from a few cents to $10,000.The increase in demand is driving the prices up. The average cost of an on-market, non-fungible asset has increased from roughly $153.58 at the beginning of the year to $210.05.Same ROI. From $250,000 to $4,45 million.Add lack of control to the mix, and the plunge in AOV hits hard.