About NFT
NFT is a type of special cryptographic token because they can offer exceptional attributes which make them unique and digitally scarce. To completely comprehend what makes these tokens special, it is worth knowing the difference between “fungible” and “non-fungible.”
When something is fungible, in this case a token, it means it can be easily replaced by something identical — and it is easily tradable. Numerous tokens and undoubtedly cryptocurrencies are fungible. In the event that you send somebody a Bitcoin, and get one back, you wouldn’t see any difference. Most of the time, fungible tokens are built using a standard called ERC-20. For the sake of simplicity, let’s imagine each of these tokens is a $1 bill. If you sent a token to someone, and got another one back a week later, they would be identical.
This is not the same with non-fungible tokens — NFT’s are ERC-721 compliant. Every token has unique information and different levels of rarity. If you were to inadvertently send one of these tokens to somebody, and get an alternate ERC-721 token back, you may be exceptionally disturbed and upset!
Fungible tokens are also divisible — meaning you can send a fraction of one ERC-20 token. (Like cash, where you can pay with a $10 bill and get change.) On the other hand, non-fungible ERC-721 tokens cannot be divided and must be bought or sold whole.
NFTs can be used by decentralized applications (DApps) to allow for the creation and ownership of unique digital items and collectibles. While NFTs can be traded in open marketplaces that connect buyers with sellers, it is worth noting that the value of each is uniquely different.
The standardization of NFTs allows a higher degree of interoperability, meaning that unique assets can be transferred between applications with relative ease.
NFTs have the potential to be one of the key components of a new blockchain-powered digital economy since the trustless transfers and management of these assets could reduce friction in trade and the global economy.
Here, the NFT market finds itself in a win-win situation. The NFT space has been massively benefiting from all of these technical innovations while serving as a perfect gateway for the new kids on the crypto block.
To make a forecast, I believe that 40% of new users will soon be coming to crypto through NFTs, will then educate themselves, and steadily transfer to other segments. While it might sound bold, it’s a rather native concept for technology: Games have always been a mechanism for onboarding. Remember the first thing you used on your computer. Microsoft created Minesweeper to teach people to use a mouse and click into small objects; Solitaire was designed to practice the drag and drop.
Why are NFTs native to human psychology?
1. Simplicity and fun
The process of collecting digital art, in-game assets (swords, garments), cards and kitties is a very easy and fun concept to grasp, and it does not require any financial education. Users see their entire interaction with the interface as a fun game and are incentivized by the emotional reward of unique object ownership.
Fabian Vogelsteller, the original creator of ERC-20 and ERC-725, has shared in his public interviews that these standards were initially created for fun community tokens — art, fashion and entertainment — rather than financial applications that have recently been successful with the DeFi movement.
Fulfilling the original idea of Ethereum architects, NFTs address the same pattern that makes people collect paintings and vases. Visual representation of an object with an immutable record of ownership is psychologically appealing to users.
2. Scarcity and investment attractiveness
Pricing of scarce items is a zero-sum game; people choose the objects they believe will be in demand by other people and thus will grow in price.
As physicist and network scientist Albert-Lázló Barabási writes in The Formula, when performance can’t be measured, network drives success. In the art community, recognized creators, who are growing in popularity and have good connections, produce a limited number of works that are highly sought after by many collectors. This promotes price growth.
If we take any industry without scarcity, say, when windows get more expensive, more windows flood the market. This is impossible in the NFT market where the value of an object is inseparable from the psychological attraction, so the economic cycles are way more distinct. The further in, the hotter it gets.
3. Adoption from Asia
The fact that a lot of crypto projects target Asian markets to be successful is old news. In the case of NFTs, this interest is even more natural because the concept of funny collectible objects and games have strong cultural origins in countries like South Korea and Japan.
Asians have an active interest in visual representations of objects, cute characters and images. For instance, mascots — cute animals representing a specific town or company — as well as world-famous emojis were born in Japan.
The value of an unbacked asset that is purely market-driven also seems to be a native concept for Asians. Games with in-house currencies that could be withdrawn existed in South Korea way before crypto.
What’s next?
Serving the demand, more gaming companies and other players have been entering the NFT space, attracting the attention of investors, who are searching for the best assets to invest in. That’s why it didn’t take long for the NFT market to reach $100 million in total sales — and it will only grow exponentially, given the factors mentioned above.
Unlike DeFi, where user interest and demand are driven by the practical applications and the promise of returns, the NFT market is driven by deep psychological patterns. As the world becomes more and more digital, many objects emerge as digital-native only, and the solution to the ownership question is already here in the form of NFTs.
There are several concerns yet to be solved to further facilitate adoption: interoperability and gas prices, among others. A unified Layer 2 solution is needed to have all NFTs visually represented on all platforms and wallets, as it’s a crucial psychological factor in terms of ownership.
Ethereum hasn’t been keeping up with the expectations to launch Ethereum 2.0 because of delayed shading and congestion, so I expect the problem with gas prices to worsen.
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