NFTs can be purchased from an NFT-based platform or distributed to someone in exchange for a service.
NFTs are digital representations of ownership developed on blockchain technology and are more similar to the title of ownership.
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You can purchase NFTs from an NFT-based platform or distribute them to someone in exchange for a service without physical contact, which means no accidental transfer of germs or potential loss due to fraudulent activity.
Currently, exchanges and wallets that issue and trade NFTs only exist in theory and several experiments.
Still, there is great optimism around the future impact they will have. And while blockchains are making it possible to issue ownership in a wholly digital way, there is still the question of liquidity.
Once platforms begin issuing these tokens as actual items that users can purchase, most people will buy them through exchanges or directly from the platform itself.
In both cases, the platform would require
people to maintain low spreads between the bids and ask prices of each asset, to avoid losses due to arbitrage.
Let’s explore whether NFTs are better than traditional assets.
How are NFTs better than traditional assets?
NFTs present ownership in a completely new way. Distributed ledger technology makes it possible to issue ownership wholly digital, with immediate liquidity and low spreads.
Furthermore, ownership representation can be distributed to the highest bidder and transferred by the platform through smart
contracts to the next highest bidder – it will then be placed on a decentralized asset list and traded through cryptocurrency exchanges or directly between buyers.
Parties that do not have direct contact can still negotiate contracts directly or buy NFTs through an exchange.
However, NFTs provide a more secure system for negotiating transactions because there are no third parties involved, which means that people, changed or limited, cannot revoke contracts without the agreement of both parties.
Asset management will be more attractive to investors. A large part of the reason that not many invest in traditional asset classes is that they are illiquid and highly regulated, so it is not easy to sell them when needed.
We believe that NFTs can bring assets back into the financial system but change their
nature for the better – making them more liquid and less regulated.
A track record does not matter as much as people think, and we talked a lot about illiquidity and regulations, but what about the lack of a track record?
It’s true that digital assets are new and have no history, meaning there is no track record on which to assess their value.
However, this is less of a problem than many think. Of course, history is essential, but NFTs are still much better than traditional
assets because they are more accessible to value and trade.
NFTs are more accessible to value and trade.
The purpose of a book of accounts which records financial transactions is to allow users to evaluate the financial position of a particular company at any point in time.
An account book provides an example
of how a balance sheet could be constructed in the future, which will no doubt be consistent with the practice used by equity analysts today.
It is common for companies to share their business model with investors and potential partners through a business plan that describes the company’s strategy and
vision for the next few years.
The potential value of an NFT is equal to the discounted sum of all future transaction fees.
NFTs also present an opportunity to “bootstrap” liquidity, as platform owners can hold an initial auction at a discount before beginning operations as an exchange.
It is possible to provide liquidity during the launch stage while allowing more time for platform development.
In addition, NFTs will be easier to manage
than traditional assets, which means that platforms can offer a better user experience and charge less for their services.
They will also be able to trade them on cryptocurrency exchanges, creating greater
liquidity.
NFTs are much more precise than traditional financial instruments and do not complicate the existing legal framework.
These features make NFTs relatively straightforward to value compared with some of the more complex financial products today.
There is a significant difference between the value of an asset that can be bought and sold at any moment and an instrument that represents long-term ownership by one party over another.
Are NFTS viable replacements for traditional assets?
The future of NFTs is unknown, but there is a strong probability that they will exist side-by-side with traditional assets because it may be more difficult to trade them in other markets.
We believe that investors have shown some differences between NFTs and traditional financial instruments, so now it’s
your turn!
It is not hard to imagine the day when investors buy their first NFT from an exchange or from the platform itself.
We have already seen how some companies plan to incorporate NFTs in their business
models.
