The advent of products and several protocols in the blockchain space has revolutionized the finance and investment sectors. This disrupted the flow of conventional systems in the market. People started adopting cryptocurrencies globally, and merchants across the world upgraded their business by accepting crypto assets. Over time, new concepts related to blockchain attracted the market. ICOs, smart contracts, and stable coins were trendy in their very own periods, and obviously, 2020 was the year of decentralized finance (DeFi). Bitcoin’s rally at the end of 2020 has reminded the people of switching to cryptocurrency instead of fiat. Now, the public’s eyes have turned towards cryptocurrency analysts and experts to get to know what really matters in 2021. And as per the data predictions, NFT has a huge potential to take over the market in 2021. Since NFTs are integrated with DeFi, the number of use cases of NFT is literally enormous.
What Is a Non-Fungible Token (NFT) ?
Fungible assets are nothing but identical assets. A fungible asset is interchangeable with another asset of the same class. The fiat currencies are fungible. A $10 bill is interchangeable with a $10 bill. The value of $10 remains the same in both classes. Unlike fungible assets, the non-fungible assets are not mutually sustainable. Real-world assets like cars, houses, etc., fall under the non-fungible category. And NFT is nothing but the tokenized version of such non-fungible assets. It may be the tokenization of real estate, or artwork and collectibles. NFT is one of the best use cases of blockchain and cryptocurrency so far. Also, the gaming industry started leveraging these tokens which potentially can be huge for the crypto space.
On getting a bit geeky, the Non-Fungible Tokens are based on the ERC-721 protocol. The major difference between ERC-20 and ERC-721 is that ERC 20 tokens are identical, and ERC-721 are a class of unique tokens. The main idea is to create unique and rare tokens based on collectible items. NFT has unique ownership, and it cannot be interchanged with any other matching NFT. Despite unique ownership privileges, the NFT is not separable.
Several firms use this concept of NFT to take the fruits of DeFi to the common people. Lukso Network is one such firm that benefits people with the use of bespoke technology. LUKSO is a Blockchain infrastructure, providing a series of standards and solutions for physical and digital consumer goods to foster transparency, circularity, and new forms of responsible production and consumption.
The Promising Combination Of NFT And DeFi
NFTs are the big thing that has happened to DeFi recently. NFTs are one of the hottest topics in the blockchain space right now. In September 2020, the sales of NFTs skyrocketed to 1 million USD. And exactly after a month in October, the sales reached up at 2 million USD. DeFi’s paradigm is helping NFTs to attain a high degree of liquidity. Integration of DeFi with NFTs has made them a basic need rather than an expensive proposition.
The birth of the NFTs enhanced crypto lending protocols. Crypto lending is a fairly simple concept that involves transferring funds from a person without any use case to those in desperate need of money. Crypto lending increases the amount of work done by crypto assets in the market. This is the wise use of capital, rather than holding them idle in wallets and banks. These NFTs expand the market of collateral in the process of DeFi lending.
The lending and borrowing in decentralized finance require collaterals. Conventionally, crypto assets are used as collaterals. With the advent of NFTs, it is possible to put any assets as collateral with tokenization. For instance, a real estate asset can be tokenized and used as collateral. The potential of NFTs goes beyond the realm of being used as collaterals. NFTs represent many more complex fintech products, bonds, or insurances. The contracts in insurances can be converted into NFT, which can be sold on secondary markets.
Another combined use case of DeFi and the NFT is the issuance of governing tokens. Many crypto ecosystems and NFT marketplaces started distributing their governing tokens making them Decentralized Autonomous Organizations (DAO).
With the increasing number of DeFi platforms in the market, the need for NFT is also surging. This could make 2021 the best year for NFT.
Why NFT's Grasp The Attention Of Many?
The vision of Blockchain enthusiasts and crypto players, either big or small, has turned towards NFT. The numbers associated with NFT are fabulous. The growth in market capitalization of NFT raised by 17% in 2019, and this growth was surged to 50% by the end of 2020. In no less than two years, the increase in the market capitalization of NFTs represents the creation of gross value over $200 million. (Source Nonfungible.com)
NFT sales activity has seen a dramatic increase in September 2020 than in any previous years, indicating the scope of NFT in the years to come. Starting from $1 million in the first week of September 2020, the sales of NFT never seemed to stop even after reaching $2 million at the end of December. At the beginning of 2021, the market capitalization of NFT has reached over $550 million (according to the data by coingecko).
Valuable In-Demand Use Cases
Universal Public profiles by Lukso Network
The world is moving towards a digital era, and digital-savvy customers expect some privacy when handling assets. Lukso offers user profiles that act as unique permanent identifiers. You don’t have to remember your username and password as the Lukso network paves the way for universal login. These universal profiles and verifiable interactions are the new beginning for the modern economy. Lukso Network allows people to enjoy complete control over their assets.
Digital certificates by Lukso Network
With the concept of NFT, Lukso creates a digital identity for both digital and physical products, thus enhancing the assets’ Proof of Ownership. By creating this ownership of assets, the products can be linked to corresponding data, bringing the physical and virtual worlds together.
The NFTs find a major role in the personal identity verification processes. Since Non-Fungible Tokens are not interchangeable, they cannot be substituted by any other matching NFT of the same class. Due to this property, they are used as an effective tool for checking personal identities. NFT’s can integrate confidential personal IDs, like a passport or driving license, to play a more secure game. This eliminates the room for fraud and reduces the checking process time since no paperwork is needed. The process is so transparent and secure as everything is automated without any human intervention.
The democratization of expensive assets
Investment is a basic need rather than a luxury. Investing your hard-earned money is more important than saving it. Like real estate or precious metals, some asset classes are expensive, and every investor cannot afford them. NFT becomes the potential solution to this problem. NFT introduces the concept of fractional ownership in the market. A real estate asset can be tokenized, and the investors can own any fraction of the asset. This enhances the liquidity in the market. When an asset is tokenized, the asset becomes more liquid. Liquidity is nothing but the ease of buying and selling an asset.
Since NFT is a profitable deal for the most developing industries like digital art and gaming, the hype for NFT will never dilute from now on. So, what are you waiting for? If Blockchain takes over the banks in the market, NFT innovates almost all the leading industries in the market, and it gives the unbanked people access to financial products. We will see a great number of use cases in 2021 for NFT’s, the demand for them will be unreal!