NFT Token. Concept And Relationship With Cryptocurrencies

NFT Token. Concept And Relationship With Cryptocurrencies

NFT tokens are very fashionable in the markets. Although the sale of valuable non-expendable goods is something that has been going on for some time, its incorporation into the world of cryptocurrencies deserves a separate study.

This method of representing unique merchandise or objects can be created on a blockchain. With this, representations of a certain good are being created. But, what is the purpose of creating a digital representation of a unique asset that, of course, is material?

NFT Tokens in cryptocurrencies

Lets start by the beginning. To understand something, it is always best to refer to its origin and its foundations. According to the legal model that governs our current society, there are two types of assets: expendable and non-expendable.

Expendable goods can be exchanged for others of equal value and do not, in principle, lose value over time. The most important feature is that to be used they must be consumed.

Let's take the most typical example to differentiate these goods. Money is a fungible good because to use it you must spend it. That is, once it has been used, you no longer have it. Of course, and I hope this is the case, you can have many bills, but they all share the same characteristic, they are substitutes of one good for another.

By contrast, a non-expendable asset does not wear out. It can be 'used' without wearing out or losing value and is not replaceable.

The latter is the most important, since banknotes or other fungible goods can be exchanged for others. However, non-expendables cannot be replaced.

Non-expendable assets applied to cryptocurrencies

In this way, a token in a blockchain network is also unique. It's not because there aren't many other 'tokens' on the network, but because more cannot be reproduced or created than the ones that have been programmed into the protocol from the beginning.

In other words, each 'token' of a blockchain network can be unique and therefore can fulfill the function of representing a tangible good that is also unique.

The utility of NFT Tokens

Ownership of some unique material goods can be exchanged without the object physically changing location.

For example, in the case of a work of art that rests in an exhibition place, even if the owner changes the work, it can continue to be displayed in the same place. In this case, what would change is who has the property right over this asset.

To streamline and record the exchange process, NFT Tokens are very useful, since they allow the transaction to be recorded in a virtual contract . In this contract, the amount delivered is recorded and the NFT Token data is unequivocal proof that the material good they represent.

It is also a public proof that can be validated before a notary by any judicial authority in the event of any dispute regarding the final ownership of the asset.

Division of non-fungible assets through virtual currencies

Another important element provided by the tokenization of non-fungible assets is their possible division.

Repeating the example so that it is understood, a certain work of art may or may not have several owners at the same time. But in the material world, the one who will seem to own it will be the one who can make use of it, in this case, for the purpose of decoration or exhibition.

However, through NFT Tokens, a certain unique piece can be represented by a much larger but always specific number of 'tokens'. This is where blockchain technology and cryptocurrencies come into play .

As a practical example, let's say that an NFT network is created for the representation of a certain unique piece. In this network, say, 100 digital currencies or virtual 'tokens' are put up for auction . In this case, each of these coins works as if it were a share, and represents 1% of the total value of the work.

According to this, the owner of that NFT Token would own one hundredth of the object in question. Therefore, you would be entitled to 1% of the operating profits or the final sale price if carried out.

This type of network can also establish governance protocols to determine the important decisions that affect the transaction of a significant number of 'tokens' in the network.

For example, in the event that you want to sell more than 51% of the total coins, something that would greatly vary the ability to make decisions about the future of the NFT itself and the object it represents.

NFT Tokens as digital collectibles

Until now we have given the example of a unique and very valuable material good so that the concepts explained can be better understood. However, in reality there are also non-expendable assets that are highly valued even if they are digital.

One of the best known cases would be that of the famous game of 'kittens' CryptoKitties, created on the Ethereum network. The virtual animals in this video game may have unique characteristics granted by the player's decisions and the method of raising them.

Virtual cats cannot be exchanged for each other nor are they divisible (poor things), so they meet the conditions to be considered non-expendable digital goods.

Of course, each virtual cat is represented by a 'token', which is proof of its existence and identification of its owner.

What types of NFTs can be tokenized?

Given the two examples discussed, it seems that just about anything can be represented with a token. In fact, there are professionals who are already tokenizing their time.

All this is related to the so-called Internet of things in which cryptocurrencies and the chain of blocks will undoubtedly play a fundamental role.

This method of representing assets is beginning to be and will be revolutionary for many markets. Another example could be the real estate case, where it would be very easy to create real estate rental and exchange networks.

The creation of an NFT token is only limited by the imagination and the needs of the users.

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