Non-fungible tokens (NFT) are a step forward beyond the relatively straightforward notion of cryptocurrency. Modern financial systems include complex trading and lending systems for a variety of asset categories, including real estate, lending contracts, and artwork. NFTs are a step ahead in the reinvention of this infrastructure by allowing digital representations of real assets.
To be fair, neither the concept of digital representations of physical goods nor the use of unique identification is new. When these ideas are paired with the advantages of a tamper-resistant smart contract blockchain, they constitute a powerful movement for good.
Market efficiency is perhaps the most evident benefit of NFTs. Converting a physical item to a digital asset simplifies operations and eliminates middlemen. On a blockchain, NFTs represent digital or physical artwork, removing the need for agencies and allowing artists to communicate directly with their consumers. They can also help businesses enhance their procedures. An NFT for a wine bottle, for example, will make it easier for various players in the supply chain to engage with it and trace its provenance, manufacturing, and sale throughout the process. Ernst & Young, a consulting firm, has already created such a solution for one of its customers.
Non-fungible tokens are also great for managing identities. Consider the example of actual passports, which must be presented at every point of entry and exit. It is feasible to simplify the entrance and leave processes for countries by transforming individual passports into NFTs, each with its own unique distinguishing qualities. NFTs may also be utilized for identity management in the digital environment, expanding on this use case.
By fractionalizing physical assets like real estate, NFTs can help democratize investing. A digital real estate asset is considerably easier to split among several owners than a physical one. This tokenization ethic does not have to be limited to real estate; it can be applied to other assets as well, including artwork. As a result, artwork does not always have to have a single owner. Its digital version can have numerous owners, each of whom is accountable for a little portion of the work. Such agreements might boost its value and revenue.
The emergence of new markets and kinds of investing is the most intriguing opportunity for NFTs. Consider a piece of real estate that has been divided into several sections, each with its own set of attributes and property kinds. One division may be located near a beach, while another is a shopping center, and still, another is a residential zone. Each piece of land is distinct, valued individually, and represented by an NFT based on its qualities. By adding necessary metadata into each individual NFT, real estate trade, which is a difficult and bureaucratic process, may be simplified.
Decentraland, an Ethereum-based virtual reality platform, has already incorporated such an idea.
As NFTs grow more sophisticated and connected to financial infrastructure, the notion of tokenized pieces of land with varying values and locations may be able to be implemented in the actual world.