NFT and Cryptocurrency the Future of Financial Technology?

NFT vs Cryptocurrency

NFT or non-fungible token is a digital asset secured by encryption. It is stored in a blockchain and has unique identification codes and metadata that distinguish each NFT from another. In layman’s explanation, non-fungible means it is unique and cannot be replaced by another. Different from cryptocurrencies, NFTs cannot be traded or exchanged at exact equivalency.

Cryptocurrencies, on the other hand, are fungible. Which means that they are identical to each other. (Referring to cryptocurrencies of the same type, example, Bitcoin against Bitcoin or Ethereum against Ethereum) Therefore, this digital asset can be used as a medium of exchange or for different commercial transactions.

For instance, a consumer can exchange a $1 bill for another $1 bill, and the value will remain the same. Same with cryptocurrency,  a user can exchange 1 Bitcoin for another 1 Bitcoin. While NFTs can be compared to a high-valued painting. If traded with another illustration, the value will differ from what was traded, e.g. a trade between da Vinci’s Monalisa and Van Gogh’s The Starry Night.

The purpose of the two crypto assets also differs. Cryptocurrency exchange can be compared to exchanging traditional currency with different money changers, then selling the digital currency when the market price increases in the future. However, purchasing an NFT is like buying a digital cellular phone. Each cellular phone has a unique serial number, features, and phone specifications. Thus, making NFTs more of an “asset” as opposed to cryptocurrency.

The growing popularity of NFTs is becoming inevitable, specifically in exchange for digital artwork. $174 million has been spent in NFTs since November 2017, as reported by a Forbes article last May 2021. However, unlike the cryptocurrency trading market, NFT trading is not yet defined. Cryptocurrency trading is now being participated by numerous countries. The United States is in the top 1.

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More About NFTs

NFTs can be compared to digital passports since each token contains a nontransferable identity that differentiates it from the others. This innovation is a shift from the current cryptocurrency prototype, making the NFTs unique. “Breeding” of NFTs is also possible, and you can combine one NFT with another NFT, making a third unique NFT.

NFTs owners can assign metadata or attributes particular to the digital asset. Similar to BTC, NFTs have their owners’ details for easy identification during transfer between token owners. Most of the NFT’s are stored in Ethereum’s cryptocurrency blockchains. These blockchains create the cryptocurrencies’ unique digital records of all transactions and an accurate ledger of NFT transactions. Currently, Ethereum’s market capitalisation is already at $323 billion, making it the second most popular cryptocurrency after Bitcoin.

Ethereum’s ERC-721 is the origin of NFTs. It defines NFTs minimum interface, the details of the owner, attributes, and metadata. All of which are required for the distribution and exchange of the gaming tokens. An improved version, the ERC-115, reduces the storage and transaction costs for NFT by placing the multiple types of NFTs into a single contract.

Cryptokitties, launched in November 2017, is the most famous NFTs. These are digital representations of cats, labelled with unique identifications embedded on Ethereum’s blockchain. Interestingly, each kitty is designed differently and has a price in ether. These NFTs can also breed among themselves, producing new offspring. These offspring also differ in their characteristics and valuation from their parents. A few weeks after it was launched, fans worldwide spent $20 million in ether purchasing, nurturing, and feeding the crypto kitties.

NFTs that followed after cryptokitties were used in business dealing. This includes real estate deals, artwork auctions, and other private equity transactions. Enabling multiple types of digital assets in a financial trade can provide escrow to different kinds of NFTs.

The Importance of NFTs

Today, the advanced financial system comprises trading technology and loan systems for various assets, from lending contracts to artworks to real estate. NFTs are the digital representation of these assets, a leap of technology in the innovation of these traditional assets. The revolution of the simple concept of cryptocurrencies as NFTs is not novel. However, when this science is combined with blockchains, they become a catalyst for change in financial digitisation.

Market Efficiency

When NFT’s become the mode of representation for digital or physical artwork on a blockchain, the need for agents can be eliminated. This feature will permit the artists to connect with their audiences directly.

This may streamline business and exchange processes and remove intermediaries.

Identity Management

An excellent situational analysis is the replacement of physical passports with NFTs. Each digital passport will be labelled with unique attributes that may simplify and modernise the jurisdiction’s entry and exit processes. NFTs can also be used to improve identity management in the digital realm.

Management of Physical Assets

Upon converting the physical real estate into digital real estate, division among multiple owners can be easy and convenient. The digital equivalence of real estate can now have numerous owners. Such an arrangement may increase its revenues and worth.

Evolution of New Markets and Investments

Developers can convert real estate into NFTs, each defined with different characteristics and property attributes. The prices of each land are different depending on its unique feature, each represented with an NFT. The real estate industry can now be simplified just by integrating related metadata into each NFT.

Cryptocurrency and NFTs, maybe the future of financial technology. As cryptocurrency is currently in the mainstream, the investor wins, and considerable revenue gains are evident and possible. Though risks and losses are present due to rapid market price trends, many are still enticed to learn more about this trade. Equally interesting as cryptocurrency, NFTs may be the new age of gaining profits through “assets”. Last March 2021, an NBA top shot generated more than $500 million in sales. Though still in its infancy, the technological breakthrough is promising.

Wrapping Up

So, there you have it. Now you know about NFT and Cryptocurrency the Future of Financial Technology. If you have any questions regarding this topic, ask them in the comment section below.