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Can NFTs be used for commercial transactions?
Non-fungible tokens (NFTs) are often confused with cryptocurrencies. Over the past couple of years, NFTs of artist Beeple and projects like CryptoPunks have hit the headlines for their high prices. Not only these, NFT assets linked to famous celebrities, like singer Madonna and actor Bill Murray, have also been released in the market.
Many websites that track the activities of cryptocurrencies also do it for NFTs. This is one reason why NFTs have become a part of the broader blockchain-based asset world, which first shot to fame with the launch of Bitcoin in 2009. Today, let us explore whether NFTs can be used for commercial transactions. Last year, regardless of its price volatility, Bitcoin was adopted by El Salvador for commercial transactions. The question is can NFTs also achieve the status of money some day?
The term ‘non-fungible’ prevents NFTs from becoming exactly like cryptocurrencies in their fundamental characteristics. Non-fungible means that one unit is not precisely like the other, and therefore can or cannot have the same value. Take, for example, the 10,000 NFTs of CryptoPunks, all of which can have different market values at any given time. This is unlike a single cryptocurrency project, for example, Bitcoin where all BTC tokens have the same price at any given time.
Cryptocurrencies, unlike NFTs, are fungible in nature. This means all units of any single cryptocurrency project share the same characteristics, and hence have the same value. In an NFT project, every separate unit has some feature that separates it from others and makes it ‘unique’.
Any NFT, like CryptoPunk #5822, which reportedly sold for over US$23 million in February this year, is considered a collectible. This makes them comparable to tangible collectibles like the Mona Lisa and items like old and rare coins. The value of an NFT asset is often decided by a bidding process. Just like an old coin or a painting by Leonardo da Vinci do not have use in commercial transactions, NFTs also cannot be used as a medium of exchange or money.
The use of blockchain technology is what that made NFTs a part of the cryptocurrency world. NFT transactions, like a change of ownership, are recorded on decentralised ledgers, such as Ethereum. However, unlike cryptocurrencies, which might find use in commercial transactions, for example, Bitcoin in El Salvador and Ether (ETH) in Ethereum’s ecosystem, NFTs have no such utility.
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Ankit is a law graduate. He holds an interest in public policy, corporate ethics, development economics, macro-economic policies, and sustainable development….
Subhanjan is a Research Editor at Kalkine Media editing copies for its Australian market. He has more than 9 years of experience in editing copies in different spheres of content, ranging from books on higher education to journal articles and other f…
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