NFTs or Non-Fungible Tokens are the hottest trends in the crypto world right now, as well as on social media.
You don’t need to go far before you see an ad to play Axie Infinity and other NFT games, or for buying a new NFT artwork that its creators swear will make you rich.
NFTs in the Philippines have has gathered plenty of attention over the past years, and people are touting it to be the thing that will make you rich.
But before we get into any investment – whether in playing a game or in buying an NFT picture – we have to understand what we’re getting into.
But do you know exactly what NFTs are and where are they used? Why are they so popular today that people spend millions for them? This article will be a beginner’s guide to defining what NFTs are.
NFTs for Dummies
NFTs are now all around us, but exactly what are they? This section will give you a brief explainer of what makes NFTs unique.
NFTs, or Non-fungible Tokens, in their simplest, is a digital certificate that is kept within a blockchain. It has a few unique characteristics that make it particularly suitable to be a new financial vehicle, such as the following.
NFTs are fixed, just like how the various crypto coins you see are fixed. Their value is pinned on the security of their code.
It means that NFTs cannot be faked unless you manage to copy its entire blockchain altogether because blockchains require extensive amounts of resources and vast computational power to handle.
This guarantees that NFTs can ensure ownership because it’s close to impossible to fake them.
For example, let’s think of NFT as equivalent to a certificate. No matter what precautions you put in, there are many ways that a physical, printed paper certificate can be copied quite easily, as long as you have the right tools.
On the other hand, you can’t do this with NFTs.
If you want to copy or take the NFT, you will have to take over the computation of millions of computers’ worth of power. While this isn’t absolutely impossible, it requires money in the billions, not to mention massive hacking prowess.
Now let’s talk about the non-fungible nature that these assets have.
Fungibility is a term for “exchangeability.” NFTs are non-fungible, which means they cannot be interchanged with others of the same unit.
An example of these immutable assets is diamonds. There are many diamond cuts around, but each one is never really the same as the other.
Despite these precious stones being the same object, they have varying cuts, sizes, shapes, or colors. They are unique, which means they can never be absolutely interchanged.
While you can exchange two diamonds for the same price, the diamond you’ll end up with will have a different set of properties than the one you traded.
Another example is an airline ticket. A ticket from one airline company is the same as another airline in the sense that they both are used to board planes. But you know that you can’t just use the same ticket from Cebu Pacific to board a plane with PAL.
NFTs are just the same, they are all digital assets but they cannot be interchanged for one another.
Contrast that with something like paper money.
My 20 peso bill is exactly the same as your 20 peso bill. If we agreed, we can exchange our bills, and no value would be lost. Everything would stay exactly the same. Money, and others like it (such as cryptocurrencies), are fungible assets.
Because NFTs are non-fungible, they are by nature scarce.
In economics, scarcity is one of the basic driving forces of price. The less there is of something, the more people will want it, and the higher the price will rise up.
Because each NFT is unique, and there can never be another like it again, NFTs can fetch high prices as being collector’s items.
You can best see this property in a game like Axie Infinity. There, every Axie is a unique NFT — which means there are no others like it. This is one way that every Axie is sure to have a value because while some Axies have similar properties, there will never really be another like it.
Other developers have used this fact to drive high prices for their NFT items, such as artwork or collectible images.
What Can you Use NFTs For?
Anything and everything that can be sold and bought online can be made into non-fungible tokens. Videos, music, game items, artwork, and even real estate properties are some things that are usually “turned” into NFTs.
Similar to collecting valuable items, many people find buying and selling NFTs enticing.
A simple example of this is in the NFT art industry. Although pieces of art in real life cannot be made the same way they were created, digital works are different since you can easily copy and paste them.
This makes it impossible for artists to sell online versions of their work because everyone can copy-paste it and the value would be lost.
This is where NFTs come in.
The original artwork can be turned into an NFT, and then traded in the open market. This way, even if everybody else will copy and paste it like they always do, the original file will have a certainty that it is 100 percent real.
Of course, that creates a whole host of problems itself, which we discuss in a different article.
But this new technology is not just for artwork – there are plenty of other applications of NFTs. For one, NFTs are revolutionizing the gaming industry by distributing ownership and increasing channels for people to earn. It can also improve decentralized finance, and offer many other possibilities.
Investing in NFTs in the Philippines
The hype and clout that NFTs are receiving in this digital age are really making everyone curious, but many people are still hesitant.
After all, is it really practical to spend massive amounts of money on something that isn’t even really there? Sure, it’s backed up with state-of-the-art technology; but even the most guarded places have their flaws. Is that enough to assure us? Doesn’t it have other issues?
Regardless of what you may think about the value and security of NFTs, they aren’t necessarily worthless. However, they do have their own issues to answer for, so you need to be very sure when investing.
The bottom line is that whether NFTs is worth the risk or not, you need to know what you’re getting into.