Hello there, I’m Bette Hochberger, CPA, CGMA. Since today marks another Web3 Wednesday, offering you an all-encompassing guide to digital tokens aka NFTs, seemed appropriate! We’ll cover their essence, functionality, and the various uses they’re put to. So, let’s get started without any delay!
Imagine you are buying digital artwork online at an affordable price. Then you receive a unique digital token that authenticates your ownership of the piece. Does this sound too good to be true? Yet, this great scenario is now possible, all thanks to the emergence of NFTs.
In recent times, these tokens have made a massive splash in the world of digital art and collectibles. This reminds us of how Bitcoin was once celebrated as the global digital currency solution. Today, NFTs are receiving equal attention as they are considered the digital answer to collectibles. Furthermore, digital artists find themselves at the cusp of significant change as they are witnessing more extensive sales to a new audience that is well-versed in cryptocurrency.
What are Digital Tokens?
An NFT, or Non-Fungible Token, is a unique digital asset representing ownership or authenticity using blockchain technology. In contrast to cryptocurrencies, they are irreplaceable, and each token has unique properties. They are built on platforms like Ethereum, enabling secure buying, selling, and trading of digital assets.
- Digital Asset: NFT is a digital asset representing Internet collectibles like art, music, and games.
- Authentic Certificate: They are accompanied by an original certificate created by blockchain technology.
- Uniqueness: The digital tokens are unique and cannot be forged or manipulated.
- Exchange: NFT exchanges occur using cryptocurrencies like Bitcoin on specialized platforms.
NFT Guide: How
- Most are hosted on the Ethereum cryptocurrency blockchain, a decentralized public ledger that records transactions.
- Each token contains valuable information stored within it.
- Market demand primarily determines their value so individuals can buy and sell them like physical artworks.
- The specific data of these digital tokens simplify verifying and validating ownership and the transfer of tokens between owners.
- Domain names
- Sports collectibles
- Digital collectibles
What Do People Use It For?
NFTs (Non-Fungible Tokens) have various uses and applications. Below are some everyday purposes for their usage.
The primary use of these digital tokens today is in digital content. They benefit content creators by giving them ownership of their content on the platforms they use to share it, leading to increased profits. This supports a creator economy that values the rights and control of creators.
Game developers have shown significant interest in NFTs due to the benefits they offer to players. In traditional online games, purchasing items for your character is typically the extent of it. You do, however, have the opportunity to recoup your investment by selling the items once you no longer need them.
Investment and Collaterals
NFTs and DeFi (Decentralized Finance) operate on a shared infrastructure. DeFi applications enable users to borrow funds by providing collateral. NFTs and DeFi collaborate to explore the possibility of using NFTs as an alternative form of collateral.
NFTs provide your domain with an easier-to-remember name. This works like a website domain name, making its IP address more memorable and valuable, usually based on length and relevance.
I hope you learned something new today. If you want to deep-dive more into digital tokens and learn about the tax side of it, check out my previous blog on “NFT Taxes.”
As always, stay safe, and I will see you next time.