Non-Fungible Tokens (NFTs)

Why in news?

• With a boom in crypto-supporting blockchain technology around the world, several other elements associated with blockchain are also garnering intrigue.
• Recently NASA has clarified that it does not want any of its content to be converted into a digital collectible or an Non-Fungible Tokens (NFTs) for being auctioned

What is a Non-Fungible Token (NFT)?

• Non-fungible tokens or NFTs are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other.
• Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency.
• This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions.
• NFTs, by contrast, are unique. They are often pieces of digital art, but can also be videos, tickets to an event, access to play-to-earn games or other digital assets.
• When someone buys an NFT, what they are actually purchasing is a token proving ownership of such an asset. It’s a bit like buying an original painting, with one key difference. Digital tokens proving ownership of an asset which doesn’t exist outside of the digital sphere and which can therefore be replicated into identical digital copies have no intrinsic asset value.
• Even if you purchase an NFT, nothing is stopping someone else from simply right-clicking, saving it and using it as their own profile picture, for example – and no one will be able to tell the difference.
• An NFTs value is entirely dependent on people being prepared to pay that sum the next time it is sold. 

More about NFT:

• NFTs can be used to represent real-world items like artwork and real-estate.
• "Tokenizing" these real-world tangible assets allows them to be bought, sold, and traded more efficiently while reducing the probability of fraud.
• NFTs can also be used to represent individuals' identities, property rights, and more.

Why are they in high demand?

• One of the other attractions is that NFTs are a part of a new kind of financial system called decentralized finance (DeFi), which does away with the involvement of institutions such as banks.
• For this reason, decentralized finance is seen as a more democratic financial system because it makes access to capital easier for lay people by essentially eliminating the role of banks and other associated institutions.

PRACTICE QUESTION:

Consider the following statements about ‘Non-Fungible Tokens (NFTs)’:

1. They can be used to represent real-world items like artwork and real-estate

2. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer