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More people are talking about NFTs (Non-Fungible Token), the steady growth of this market is attracting worldwide attention. That’s why it becomes even more important to understand how they work, their benefits and risks.
What are NFTs (Non-Fungible Token)?
The non-fungible token (NFT) is a digital authenticity seal that uses the same technology as cryptocurrencies, the blockchain, transforming digital and collectible items into easily tradable assets.
NFTs are alternative investments, which unlike cryptocurrencies, which are fungible, that is, they can be replaced by others equivalent in value, tokens are not fungible, they are unique.
No NFT is equal to another, both in terms of value and properties. NFTs have become a trend both for artistic producers, who can now rely on the digitization of works, and for collectors, who create collections of unique tokens, with registration of authenticity and ownership.
The exclusivity criterion presented by the tokens makes their values extremely high, which for many is seen as an opportunity, but it is necessary to be careful, as there are some risks in these investments.
What are the opportunities with NFTs?
With popularity on the rise, the use of NFTs is increasingly recurrent, as they can be used to represent virtually any type of real intangible asset, such as artwork, collectibles, game items and so on.
NFTs are being used to capture a large proportion of the value available in the decentralized finance (DeFi) sector, but their use goes beyond being used to sell art, the use of NFTs has great potential in various sectors of the economy, especially as a factor of innovation in financial services.
Within this context, there are initiatives for insurance coverage to protect cryptocurrency portfolios, sold as NFTs. Another practical implementation is in the financing of credit lines for trade.
By tokenizing the guarantee of payment to the final buyer via NFT, an incentive is created for suppliers to transfer the NFT throughout the entire supply chain, in a simple way, without drawing up contracts.
NFTs can also be used as digital receipts, linked to bills of lading, payments, logistics information or any type of commercial documentation, providing legal certainty and preventing fraud.
There is great potential in using NFTs to create new financial services with innovative solutions.
What are the risks involving NFTs?
Despite all the opportunities presented by the use of NFTs, it is necessary to be careful, since all transactions, especially digital ones, pose risks.
Each NFT is unique and non-fungible, its property is stored on the blockchain network, which in turn makes it very difficult to edit its record, but its property is not represented by an ID linked to the holder, but by two parts of the code, the private and public keys.
Both keys are associated with a digital wallet, once the holder loses control or access to these keys, he will lose ownership of the NFT.
Some companies are already offering a custody service for digital wallets, aiming at greater security for owners, once the management leaves their hands, ensuring that even if they lose their key, they will still have access to their funds.
It is also necessary to be very careful when buying an NFT, especially those related to works of art, since it is a non-fungible token, it will not be possible to exchange it for another asset of equivalent value.