Hello there, In this smartbook, we will discuss NFTs in detail. The future scope, use cases existing and potential problems, etc.
Before diving deep into the topic let's first understand what NFTs are and how they actually work.
If you are not a developer then you might actually think - after all the NFT is just a digital asset that was there even before the NFTs were introduced so how does the NFT make any difference?
Well, the answer is using Blockchain Technology. The main pillars of this technology are decentralization, immutability, and transparency. With these things introduced digital assets now have more value than the traditional way. Let's first discuss decentralization.
As the word suggests, blockchain is immutable means one can not alter the data that is added to the blockchain, every data is added to the blockchain in the form of transactions, it's basically a distributed ledger. As the data is stored in the blocks that are connected with the chains of hashes one can easily trace where the fault is. You can get a better understanding with the following image
Now the next one is transparency.
For a public blockchain, everything is transparent in the form of hashes. In our case, this helps to quickly identify the owner of any digital asset or the past transaction history from where the particular asset is transferred. Very cool right?
OK. Enough of the technical terms. Now you must have understood why the digital asset on the blockchain has more value than the traditional asset which is stored on some cloud storage.
The funny thing!
People may say that NFTs "is dumb" usually alongside a picture of them downloading or taking screenshot an NFT artwork. "Look, now I have that image for free!".
Well, yes. But does googling an image of Picasso's Guernica make you the proud new owner of a multi-million dollar piece of art history?
Ultimately owning the real thing is as valuable as the market makes it. The more a piece of content is screen-grabbed, shared, and generally used the more value it gains.
Owning the verifiably real thing will always have more value than not.
The creator of an NFT gets to decide the scarcity of their asset.
For example, the user can decide how many NFTs can be minted. Suppose there is some community for the developers and to be part of the community one must have the community pass. Now the community administration can mint the same designed passes for its members but still, each pass will have a unique id associated with it. My point here is to tell that it's not mandatory to have a unique design but to have a unique id associated with the digital asset. The administration gets to decide how many passes should they mint. Now how can this be possible? Well if you want to get a deeper understanding of the NFT architecture you can take this course: https://dapp-world.com/course/nft-fundamentals-Ltvx
2. Fractional ownership
This thing is very interesting, This actually opens many doors for investors to buy a fraction of any famous NFT without buying the whole thing. Later on, the fractions can be traded just like tokens on any DEX platform.
Now let's imagine a world where every asset (physical and digital) is tokenized with an NFT. This will make the loan process much easier and simpler. You just have to keep your asset as collateral and borrow money. You don't need to carry hundreds of documents to the banks and carry on the lengthy and hectic procedure. The bank will already have all of your assets listed and can easily perform the transaction for the loan. Also, this is very easily traceable for the authority to cross-check.
There are many more use cases like,
- Some NFTs will automatically pay out royalties to their creators when they're sold.
- Tokenization of real estate, one-of-a-kind fashion items, and more.
1. Who Owns the Underlying Asset?
If you are a developer then you can understand this thing, basically, the digital asset is not stored on any blockchain, it's just the id that is matched with the owner's address, and the asset is stored on something which is hosted somewhere. We can use things like IPFS which keeps track of things but still, this does not mean that the asset you are saying is yours is truly yours.
since currently there aren't any regulations around NFT, we can just mint another kind of NFT collection and copy the digital asset and save it to someone else's account. Or say we have changed the blockchain itself. Suppose tomorrow some came and just cloned the bored ape collection to the Solana blockchain. What is legally binding for the bored ape collection?
2. Scams and Copyright Infringements
Unfortunately, that is not all, there are also plenty of scams and copyright infringements, or some call it satire or art in itself, of famous and expensive NFT collectibles such as the Bored Ape Yacht Club. One example is the Phunky Ape Yacht Club (or PAYC) which simply flipped the right-facing Bored Apes to face left and resold them, making around $1.8 million in the process.
PAYC has since been banned from centralized markets such as OpenSea, Raible, and Mintable, which again shows the power these centralized markets have by creating a seamless trading experience for the masses.
4. Legal Challenges
There is no legal definition of NFT known in the entire world. So as of now, there aren't any regulations around these tokens.
5. Cyber Threats and Online Fraud Risks
The popularity of NFT has also increased the chances of cyber threats to the NFT market. Plenty of cases are visible where replicas of the original NFT stores are put up on the internet. These stores look authentic because of the original logo and content. These fake NFT stores are a massive risk because they might sell NFTs not even present in the digital world. On top of that, there are chances of counterfeit NFTs being sold in a fake NFT store.
So that's all for this smartbook, To get more information about NFTs you can visit the DAppWorld https://dapp-world.com and take courses related to the blockchain and NFTs to get a better understanding. Any suggestions are welcomed.