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What Is the Importance of Non-Fungible Tokens?

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Non-fungible tokens are a development on the relatively straightforward concept of cryptocurrency. Modern financial systems are made up of complex trading and financing systems for a variety of asset categories, including real estate, lending contracts, and artwork. NFTs are a step ahead in the reinvention of this infrastructure by allowing digital representations of physical assets.

To be sure, the concept of digital representations of real assets, as well as the usage of unique identification, are not new concepts. When these ideas are paired with the advantages of a tamper-resistant blockchain of smart contracts, however, they create a powerful force for change.

The efficiency of the market is perhaps the most obvious benefit of NFTs. Converting a physical asset to a digital asset simplifies operations and eliminates middlemen. Artists can engage directly with their fans using NFTs that represent digital or physical artwork on a blockchain, eliminating the need for agents. They can also help to streamline business procedures. An NFT for a wine bottle, for example, will make it easier for various actors in the supply chain to engage with it and trace its provenance, production, and sale throughout the entire process. Ernst & Young, a consulting firm, has already produced a solution for one of its clients.

Identity management can also benefit from non-fungible tokens. Consider physical passports, which must be presented at each point of entry and exit. It is feasible to streamline the entry and leave processes for jurisdictions by transforming individual passports into NFTs, each with its own distinct distinguishing qualities. NFTs can also be used for identity management in the digital environment, which is an extension of this use case.

By fractionalizing physical assets such as real estate, NFTs can help democratise investing. A digital real estate asset is far easier to divide among several owners than a physical one. This tokenization ethic does not have to be limited to real estate; it can also be applied to other assets like artwork. As a result, an artwork does not always need to have a single owner. Its digital version can have numerous owners, each of whom is in charge of a small portion of the painting. Such agreements could boost its value and revenue.

The emergence of new markets and kinds of investing is the most intriguing opportunity for NFTs. Consider a piece of real estate that has been divided into several sections, each with its own set of attributes and property types. One division may be located near a beach, while another may be located in an entertainment complex, and yet another may be located in a residential zone. Each piece of land is distinct, priced individually, and represented by an NFT based on its qualities. By adding necessary metadata into each individual NFT, real estate trade, which is a difficult and bureaucratic process, can be simplified.

Such a notion has already been implemented in Decentraland, an Ethereum-based virtual reality platform. It may become possible to deploy the same concept of tokenized chunks of land (varying in value and location) in the physical world as NFTs become more sophisticated and integrated into the financial infrastructure.

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