Non Fungible Token : Meaning, Working, Advantages, Disadvantages

Meaning Of Non-Fungible Token

Non-Fungible Token is a virtual locker that stores data about art and music. Also called a digital asset, NFT uses hard core blockchain technology to secure the personal data of the owner so no one can copy or replicate it and sell any first copy.

It is bought and sold online and holds no physical existence and as the name suggests, it occurs in the form of a token.

Let’s say, you buy an antique artwork of a famous artist for which you get a token. The seller can, here, assure you that the artwork you hold is original as it is stored and secured in NFT. The NFT cannot be divided, exchanged, or replaced.

Working Of Non-Fungible Token

NFT lets you securitize your work and maintain its originality. It lets you store valuable information which can be, anytime, verifiable and validated only at the owner’s discretion. Its use cases are:

i) Online Content Creation: Artists often create art in digital form and want to secure it from fraudulent activities.

NFT, here, enters to save the content and store it in token form, which is well designed and coded by Ethereum blockchain technology, and publicize it in the online media without any threat.

ii) Remove Intermediaries: NFT has transformed the e-trade era where it can remove intermediaries from trade lines and directly provide a secure platform for buyers and sellers. It also helps to create unique IP addresses and specific domain names.

Advantages Of Non-Fungible Token

i) Scope Of Investment: With personal research and analysis, people have started investing in NFTs and have become more tech-savvy. Since its demand is high and is low in supply (due to involvement of less number of people), it can touch high prices. This helps people reap a good amount of profits in this field.

ii) Transparency: Backed by intensive blockchain technology, NFTs are under close supervision and security of the sole owner. Thus, there are no chances of fraud or cheating and thus, it is transparent in nature.

iii) Transferability: Owners can easily share their access with others. Its use case is well defined and levels designed and are smoothly used in digital applications.

Disadvantages of Non-Fungible Token

i) Not classified as an Asset: Although overhyped, NFTs are not an asset class. They are a tech-driven securitized token for securing and storing your information. As a result, they cannot be counted in asset classes.

ii) New and Unexplored field: NFT is an unexplored field not known to many. As a result, hackers take advantage of this loop and find possible means to hack the technology to steal valuable data. NFT is also illiquid in nature as it holds no scope for free e-cashflow.

iii) Not a Revenue Stream: Since NFT is not an asset class, it does not yield any return, unlike stock and bonds. It is only subject to appreciation in price but does not provide any realizable profit, gain or return on investment.

iv) Concern To Environment: Mining of blockchain is harmful to the environment as it leads to carbon emissions, heating effects, and eventually, global warming. This is a serious threat to the economy and the globe at large!