What Are Non-Fungible Tokens And Are They A Good Investment?

It’s no news that the crypto space has been flourishing over the past years, with many coins and tokens breaking their all-time highs on a regular basis. A new coin or token comes out every other day, each promising to revolutionize some part of our society and most likely making grandiose claims about becoming the next big thing in finance. While there is no denying that we are living through an exciting time, it becomes difficult to separate the signal from the noise. 

One promising and often overlooked category of cryptocurrencies is non-fungible tokens. Although these coins may not have the same name recognition or market caps as the other high-performing cryptocurrencies, it’s still an attractive category for investors who are looking to diversify their portfolios. That being said, exactly what are non-fungible tokens? How do they perform financially? Should you invest in this digital asset? This article will attempt to answer these questions and more.

What Are Non-Fungible Tokens?

First and foremost, it is important to understand what non-fungible tokens are. To put it simply, they are an asset that cannot be merged or split into two separate assets of lesser value. In this sense, they are the digital equivalent of items such as antiques or collectibles such as baseball cards. Unlike regular cryptocurrencies such as Bitcoin and Ethereum, which can be broken down into smaller parts, an NFT typically cannot. They are tokens that can be used to represent ownership of unique items. They permit us to tokenize things like art, collectibles, even real estate. They have only one owner at a time, and there is no way to delete or duplicate them. In other words, no two of them are the same.

How Do NFTs Work?

Non-fungible tokens are on the Ethereum blockchain, which means that they are powered by ERC20 tokens on the Ethereum network. However, there are different types of non-fungible tokens; some are built by using interoperable standards such as the one proposed by Carbon, while others use their own custom standards. A fungible token is a cryptocurrency that can be divided into units to the eight decimal places. In contrast, they cannot be divided in this way.

The best way to understand how non-fungible tokens work is by looking at specific examples.

Decentraland: Perhaps one of the most well-known platforms for buying and selling digital assets is Decentraland. The platform allows users to purchase virtual land, build on it, and sell their land in the marketplace. This creates an interesting real estate market where people can make money selling their plots of virtual land in this online world. The assets on this blockchain represent ownership of the virtual land.

Similar to Decentraland, CryptoKitties is an online game where users can buy and sell different types of digital cats with Ethereum ERC721 tokens on the network. Since these are non-fungible tokens, each cat on the platform represents a unique digital asset. The value of these cats depends on their scarcity in relation to demand.

Other non-fungible tokens include CryptoPunks, which are pixel art avatars that each represent a different cryptographic puzzle. Each punk represents a unique image or idea represented by complicated cryptographic hashes that would be difficult for another person to reconstruct the same exact image.

The Benefits Of NFTs

So what are the benefits of buying non-fungible tokens? For many, these tokens have an intrinsic value because they are scarce and therefore more valuable compared to other cryptocurrencies on the market. This means that unlike Bitcoin or Ethereum, which can be used to purchase different digital assets, non-fungible tokens represent something. Each token is unique and cannot be duplicated or used by someone else to purchase a separate item.

These non-fungible tokens also offer users the ability to store and transfer their cryptocurrency without using an exchange, which can be complicated and time-consuming for many casual investors in the market. For example, a user could purchase a CryptoKitty with Ethereum, send it to another person as a birthday present, and the receiver could then sell it for Bitcoin.

They also offer users greater security because they do not require third-party services such as exchanges or wallets to transfer value from one address to another.

Are They a Good Investment?

Yes, non-fungible tokens are a good investment. Compared to other cryptocurrencies on the market, these tokens have lower transaction fees and enable users to make transactions quickly without paying for third-party services. They also enable people to buy and sell unique digital assets with other people across the world. Cryptocurrencies are typically seen as a good investment compared to fiat currencies because they are not subject to inflation or capital controls. For these digital assets, however, the value of the tokens depends on their scarcity and demand in relation to other non-fungible tokens.

Although some early adopters have made considerable gains investing in non-fungible tokens, this type of token is still in its early days, and the increased demand for these tokens could eventually increase their value.

Non-fungible tokens are a good investment because they offer investors a chance to own a unique asset that has value. They are also relatively new and still have room for growth, making them a good investment opportunity.