What are non-fungible tokens (NFTs), and what is their trend in Malaysia?

Non-fungible tokens (NFTs) exploded for the first time some time ago and like a lot of things online the trend has reached the shores of Malaysia as well.

Globally, supporters see NFTs as the next big thing in art collection, and some of the most famous NFTs are digital works of art.

Cool, but what are NFTs?

Before continuing, it should be said that being a relatively new concept, DFTs are still the subject of much discussion and often cannot be fully understood in one sitting. It will take time, research, and other perspectives to form your own understanding of NFTs and their uses.

That being said, there is an easy way to start understanding them.

Fungible items are assets that can be easily traded. For example, every RM10 ticket in your wallet has the exact same value, so it doesn’t matter which RM10 ticket you use to pay for your lunch. Cryptocurrency is also fungible, because one Bitcoin has the exact same value as another Bitcoin.

However, if something isn’t fungible, you can’t easily swap it out for something else because it has unique properties.

So, think of NFTs as a unique digital signature that you can attach to assets. These assets can take the form of a digital artwork, music video, song sample, or even a Tweet, which are then purchased with cryptocurrency or fiat money ( government issued currency like our Ringgit).

Although these are digital examples, NFTs can also be used to represent physical items such as collectible cards, which are popular among sports and comic book fans.

Overall, NFTs can basically be viewed as deeds or titles that prove that you own a certain asset. Proponents argue that NFTs are then more reliable than paper deeds because they are stored on a blockchain.

Wait, what is a blockchain again?

A blockchain is a distributed, decentralized digital public ledger that exists on a network. The goal of the blockchain is to allow the recording and dissemination of digital information, but not modification.

Visualize each new information compressed into a block. This block is then attached to the end of the previous block, and all of these blocks are connected via a chain. This is how data is recorded and kept traceable.

In addition, a blockchain allows data to be distributed among several different network nodes in different places.

Therefore, if one copy of the data is tampered with, the other copies will display the original records to help locate the node with incorrect information, and a clear and transparent order of events can be given.

This security is the reason why blockchain technology has found its way into various industries including insurance, finance, real estate, voting, etc.

Okay, back to the NFTs. What exactly makes these things valuable?

To put it briefly, it works like all other commodities, and there has to be a demand for it to be of value.

One factor that determines the value of an NFT is scarcity. People love to have bragging rights, so being able to own a one-of-a-kind NFT satisfies that feeling.

Another factor is the usefulness of an NFT, whether in the physical or digital world. NFTs are not just collectibles, as they can also be used in games or for future opportunities as part of a “club”, for example.

In games, their use is immediate, such as providing characters, bonuses, etc. Meanwhile, some NFTs may be “tickets” or “memberships” to exclusive events, perks, etc. .

Also important is the provider of the object to which the NFT is linked. For example, people will be more likely to value a Marvel-created NFT of an MCU character more than an NFT of that character drawn by an artist not affiliated with Marvel. This is similar behavior to why people prefer to buy from popular brands.

So technically anything can be an NFT, but it’s not necessarily a value that people will buy.

Tell me the pros and cons of NFTs.

As time goes on and we learn more about NFTs, it is likely that their pros and cons will change. For now, however, these can also be simplified.

Advantages:

  • For artists, DTVs can be a way to earn more income. The current popularity of NFT provides an opportunity for exposure, and artists who create NFTs can access a market beyond art dealers and other elite groups.
  • For owners, NFTs are a digital property signature that cannot be undone. Even if an artist produces two works of art of an identical nature, both digital assets will have a special “serial number” to prove ownership of each. Therefore, the NFT that you own is still unique in itself.

The inconvenients :

  • For artists, the “gas charges”, which are the costs of transactions made on the platform on which the NFT is hosted, can be expensive. This is because fees fluctuate according to supply and demand, and if an DFT is sold for a price slightly higher than or equal to the price of gas, the artist may earn little or even suffer losses.
  • For owners, ownership of an NFT does not mean that you own the copyright to the asset. This means that you cannot control its distribution or duplication.

These are just a few of the main pros and cons, with another debate surrounding DFTs being their impact on the environment. Blockchain technology in general has a high energy cost and carbon footprint due to the supercomputers needed to “cash in” (turn a digital file into an asset on the blockchain) an NFT.

However, there has been recent news from a Canadian tech company claiming it has developed a self-sustaining system in which waste oil is turned into environmentally friendly energy that powers crypto mining (the creation of blocks blockchain).

It’s still early days, but it just shows that what we know about NFTs today could very well be different by tomorrow.

How are NFTs doing in Malaysia?

Well, from the news, pretty good it seems. Not only have we got individual artists like Red Hong Yi, Katun, Namewee, and more making Thousands to Millions of Ringgit selling NFTs, but we’ve also seen big companies getting into the hype, like Kadokawa Gempak. Starz with its NFT selling card packs.

Red Hong Yi’s ‘Doge to the Moon’, which sold for over RM325,000, and Katun’s ‘Garden of Bloom’, which was part of a sale totaling RM1.6 million / Credit from image: Red Hong Yi / Katun

We also have Malaysia based NFT markets like Pentas and TRART to facilitate the NFT transaction. Safe to say, this is a growing trend in Malaysia too, and the possibilities for its growth seem endless.

However, anyone looking to get into building or buying NFT should definitely do their own research to understand as much as possible before making an investment.

This is important to protect against risks as DTV is not yet regulated in Malaysia. Laws are slow to catch up with trends, with the United States recently announcing that it will now regulate the buying, selling and setting up of NFTs.

Will this be the trajectory we are also seeing in Malaysia?

If NFTs are ultimately considered to be securities (a marketable financial asset), they will fall under the jurisdiction and jurisdiction of authorities that regulate securities, such as the Securities Commission Malaysia (SC). Until then, it appears to be a relatively open market.

  • Read more of what we wrote about NFTs, blockchain, and crypto here.

Featured Image Credit: Katun / Hong Yi red

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