NFTs are transforming the way digital artwork and collectibles are used. There are some main uses of NFTs nowadays, uses that are evolving.

Great opportunities are ahead thanks to the increasing sales from a crypto audience. More and more creators and entrepreneurs are joining in as NFT represents a new way to make money and connect with their audiences. 

In this article, you will learn about how NFTs work, the main uses of NFTs, the advantages that provide making an NFT investment, and some risks to be aware of. 

 

How do NFTs work?

Non-fungible tokens (NFTs) are tokens that serve as a representation of ownership of a digital piece of art. These digital and unique pieces of digital art are not divisible. They are secured and can be tracked by the Ethereum blockchain technology.  Also, they can only have one owner at a time. This ownership is managed by metadata and a unique ID that cannot be modified or copied. 

The NFTs are minted using smart contracts which are in charge of assigning the ownership and managing all the transferability processes.  Once the NFTs are minted, a code stored in the smart contracts will be executed following certain standards such as ERC 20, ERC 1155, and ERC 721. The minting process of NFTs can be divided into three main steps:

  1. The first is the creation of a new block.
  2. Secondly, validating the information through the code.
  3. Thirdly, this information is recorded into the blockchain.

The main uses of NFTs

There are different use-cases of NFTs in today’s world. The main ones are the following. 

Digital Art

The biggest use of NFTs relies on the digital content realm as they serve as the driver of a new creator economy. Before, artists had to publish their work on social media and generate money by paying for ads that are displayed to their followers.

However, using NFTs creators will not have to hand the ownership of their art to these social media platforms where they publicize their work. Instead, the ownership is placed on the content itself. This means that once their digital arts are sold, the funds are given directly to them without an intermediary. 

They can even receive royalties for being the original creator when the new owner decides to sell the NFT to others. This is guaranteed because the original creator address is embedded in the metadata of the token. 

This provides creators the freedom to keep creating digital art with the guarantee that they will be recognized and receive corresponding monetary compensations.

Crypto Games

In traditional games, players can buy digital items that can be only used in the game such as powers, armours, weapons, etc. But, if these items are transformed into NFTs, the player can make money by selling them in the NFT marketplaces. If the item is highly desirable for other players to buy, the more profitability the player can get. Therefore, it could be said that NFTs are a passive income that game players can make while doing what they like to do – play. 

Game developers also benefit from the use of NFTs in their games as they can earn a royalty every time each of their digital assets creations is re-sold in the blockchain market.

Also, it must be mentioned that the NFTs found in the games can outlive the games themselves. The digital items collected by the players remain theirs even if the game is no longer maintained. This provides value to the NFT outside of the game too. 

DeFi

NFTs and centralized finance (DeFi) are starting to work together. For instance, some crypto projects are exploring using NFTs as collateral in order to access loans. Also, NFT creators can also provide ‘’shares’’ of their digital artwork so investors can own a part of it without needing to purchase all of it. 

Advantages of using NFT’S

Using NFTs can bring a range of opportunities and advantages. In this section, we are going to explore what these benefits are. The main advantages of using NFTs are:

  • Decentralization: This means that NFTs are not managed or controlled by a third party or central authority such as banks. This means that it is based on peer-to-peer interaction, making the NFTs most trustless and secure. 
  • Creation of an Economic Opportunity: As previously mentioned, NFTs are opening a new economic path to digital creators. This boosts not only their creativity but their wallets as the funds can go directly to them.
  • Transparency: All the information of the NFT is automatically recorded in the blockchain through a code. Taking into consideration that the information cannot be modified, it creates a more transparent environment. Also, all this information can be verified by anyone as blockchain platforms are public spaces. 
  • Security: All NFTs are stored in blockchain platforms meaning they can be tracked and managed by the network, ensuring they are difficult to forge and making them more secure. 
  • Portability: The transferability of ownership of NFTs can be made easier and faster using smart contracts. This makes NFTs ideal to use in digital platforms and applications. 
  • Fungibility: NFTs are non-fungible unlike other tokens in the blockchain market such as cryptocurrencies like Bitcoin or Ethereum. This means each NFT is unique for representing digital assets such as game items and artwork or collectibles.
  • Inclusive growth: NFTs offer opportunities for creators from all fields in the blockchain ecosystem. Also, considering the prospects of loyalty rewards means creators from all over the world can benefit from NFTs and grow alongside the development of blockchain technology.  

Uses of NFTs: The risks involved 

It is also important that investors have at least an overall idea of the risks involved when investing in NFTs. For instance, the value of these digital assets is vulnerable as they can be impacted due to different factors. For example, technology changes and advancements, regulatory and policy changes, or due to the NFT market itself growing or shrinking. 

Also, the trading and holding of NFTs can involve risks as NFT exchanges can suffer from technical errors or even cyber-attacks. These situations can result in a loss of funds.

In order to avoid these risks, investors must carry out their own research to understand all the positive and negative points that involve investment in NFTs.

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