By Mussie Legesse, Creative Lead at Xeddy
Non-fungible tokens, more commonly known as NFTs, simply put, are representations of digital assets that exist on a blockchain. To better understand non-fungible tokens, it might be useful to define the words that compose the name. First, non-fungible refers to the idea that assets can be unique and rare; therefore, they can be valued differently. A popular example of something that is non-fungible is a basketball card. The value of a basketball card is determined by its edition number, year, player, condition, and rarity, which is unique to that card. This means basketball cards vary in value and cannot directly be exchanged. Second, a token is generally known as a representation of something unique; an example would be loyalty program credits or claims to a free car wash. According to an article by L.Oliveira et al., titled “To Token or not to Token: Tools for Understanding Blockchain Tokens,” tokens in the blockchain world represent assets, utility, or a claim to something inherent to a particular blockchain project. So, non-fungible tokens refer to something unique or rare that cannot be traded equivalently.
Assuming a macroscopic view of non-fungible tokens, NFTs register as a part of a larger classification called cryptographic tokens. Cryptographic tokens are best described as the digital version of the existing concept of tokens. These are much different than cryptocoins, like that of Bitcoin and Ethereum (Eth). Blockchains like Ethereum create the infrastructure to develop cryptographic tokens. Apart from non-fungible tokens, the classification of cryptographic tokens includes utility and security tokens. Utility tokens are built with a particular function or purpose in mind, meaning that the owner/user of the tokens has access to a particular function that is specified by the provider of the token. In simpler terms, utility tokens act as digital vouchers. On the other hand, security tokens represent tokenized tradeable investments. An example would be a tokenized version of shares of a company. The difference between non-fungible tokens and utility/security tokens is clear, in the fact that utility/security tokens are not non-fungible. Also, it is fair to say that NFTs can function as security/utility tokens if these tokens have some level of uniqueness or intrinsic value that could make it non-fungible.
Below are some interesting statistics about the NFT industry and trends during 2021, the below stats were obtained from the “Yearly NFT Market Report 2021” by NonFungible and “NFT — statistics & facts” by Statista:
From 2020 to 2021, the observed increase in the volume of dollars traded, total resale profits, and total resale losses seem to be indicative of the growing interest in the NFT space. Additionally, the increase observed in the total active wallets and the average price of NFTs from 2020–2021 are indications of the same thing. It is my conclusion that existing participants in the NFT space are interacting more often and there is a larger number of new participants joining the community as a whole. Taking these statistics into consideration and assuming my conclusions resemble reality, the NFT economy will evidently thrive and continue to see extensive upside in the future.
