Benefits and Importance of Non-Fungible Tokens (NFTs)

By Abhinav Girdhar | Last Updated on July 23rd, 2022 9:16 am

Non-fungible tokens are digital assets that have their own unique value. You can create NFTs using the NFT generator, and sell, trade or exchange them on the blockchain.

Tokens are fungible if they are interchangeable. When it comes to tokens, fungibility means that one token is just like another. The same can be said for a dollar bill. Ten $1 bills are worth the same as any other ten dollar bills.

There are many benefits to NFTs that differentiate them from their fungible counterparts. Some of the benefits of NFTs include:

1. Intellectual Property

The main benefit of NFTs is that they allow individuals to own a piece of intellectual property. It is easier to track ownership of intellectual property when it is embedded in a blockchain. It is also easier to ensure that the owner of the IP is not infringing on other people’s IP.

For example, a fashion designer can create a garment and embed his or her design in a smart contract on a blockchain. The blockchain can then record the unique design and the designer’s ownership of the design. The designer can then choose to sell the design to a consumer. The consumer will be able to authenticate the design via the blockchain and ensure that the design has not been copied.

2. Insurance

NFTs can be used to provide insurance for objects that have value. For example, a product can be embedded with a smart contract on the blockchain. The smart contract can record specific attributes of the product such as serial numbers, model number, manufacturing date, and more. The smart contract can also record the ownership of the product and the owner’s details.

If the product is lost or stolen, the owner can use the smart contract to prove that he or she owned the product and that the product is unique. The owner can then receive compensation from an insurance company based on the recorded data on the blockchain.

3. Digital Ownership

Digital ownership is one of the most significant benefits of NFTs. With digital ownership, there is a clear record of who owns what and where the ownership is recorded. Ownership can be transferred from one person to another without the need for a third party.

Digital ownership can also be more secure than physical ownership. For example, a digital key could be stored in a smart contract that is impossible to duplicate. A smart contract can also track who owns the key and when the ownership was transferred.

4. Collectibles

NFTs have been used to create valuable collectibles. For example, CryptoKitties are digital kitties that have unique looks, and they can be owned by users. The kitties are traded on-chain, and they have their own market value.

5. Representing Real-Life Assets

NFTs can be used to represent real-life assets. For example, a company can create a unique asset on a blockchain that can represent a share of the company. The asset can then be traded on an exchange.

The asset can also be transferred to a new owner any time using a smart contract. The ownership of the asset can be recorded on the blockchain, and the asset’s value will be based on demand and supply.

6. Property Titles

NFTs can be used to record property titles. For example, tokens can be created to represent real-world properties. The tokens can then be traded on a blockchain, and ownership of the token can be transferred using a smart contract.

The token can be used to represent ownership of the property, and the ownership of the property can be verified on the blockchain.

7. Decentralized Apps

Tokens can also be used to fund the development of decentralized apps. For example, a decentralized app called CryptoKitties was created on the Ethereum blockchain and raised $12 million during its ICO.

8. Digital Collectables

NFTs can be used to create digital collectables. For example, the ERC721 standard can be used to create unique digital collectables that can be traded on a blockchain. The collectables can be traded on an exchange, and they can have a market value that is calculated by supply and demand.

9. Voting

NFTs can also be used to create digital voting systems. For example, ERC-721 tokens can be created to represent voting rights. A group of ERC-721 tokens can be created to represent a vote, and they can be traded on an exchange. The votes can be counted on the blockchain, and the voting process can be transparent.

Importance of NFTs

NFTs can be used to create digital collectables, and they can also be used to represent real-life assets. Here are the reasons why NFTs are important.

1. Transparent Ownership

NFTs have the potential to create a transparent ownership system. Ownership can be recorded on the blockchain, and there is no need for a third party to manage ownership.

2. Immutable

NFTs are immutable because once data is recorded on a blockchain it is impossible to change. This creates a transparent record of ownership and transactions.

3. Decentralized Tracking

NFTs can be used to create decentralized tracking systems. Ownership can be recorded on the blockchain, and ownership can be transferred in a decentralized fashion.

4. Greater Accessibility

NFTs can be used to make ownership more accessible. It is much easier to transfer ownership of an NFT compared to transferring ownership of real-life assets.

5. Ownership Is Transferable

NFTs can be transferred between users without the need for a third party. This can give NFTs a greater value than physical assets.

6. Ownership Is Easy to Verify

It is much easier to verify ownership of an NFT than it is to verify ownership of a physical asset.

7. Ownership Is Transparent

NFTs are transparent because ownership of the NFT can be recorded on the blockchain.

8. Ownership Is Flexible

NFTs can be traded on exchanges. This gives NFTs a greater value than physical assets.

Limitations of NFTs

NFTs have some limitations that should be considered before deciding to invest in NFTs. Some of the limitations of NFTs include:

1. Difficult to Trade

NFTs can not be easily traded because they should be used for exchanging other assets. It is impossible to trade NFTs for fiat currencies.

2. Refused by Exchanges

NFTs are not recognized by all exchanges, and it is not possible to trade them for fiat currencies.

3. Restrictions on Ownership

NFTs may prevent owners from selling their assets. For example, the NFT may represent ownership of a property that can’t be sold.

4. Not Always Easy to Sell

NFTs are not always easy to sell. For example, the NFTs can be used to represent ownership of a house that is not easy to sell.

5. Difficult to Establish Value

It is difficult to establish the value of an NFT. For example, the value of a physical asset is based on supply and demand. The value of an NFT is based on the record of ownership.

6. Not Always Transferable

NFTs may not always be transferable because of the nature of the asset that is represented by the token. For example, it is not possible to transfer the ownership of a physical house.

7. May Not Represent Real-Life Assets

NFTs may not always represent real-life assets since they may be used to represent digital collectables instead.

8. Not All Assets Can Be Represented

Some assets can’t be represented on a blockchain. This may prevent NFTs from being used to represent assets that have value.