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Non-Fungible Tokens (NFTs)

  • IASbaba
  • January 25, 2022
  • 0
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Non-Fungible Tokens (NFTs)

Part of: Prelims and GS-III Economy

Context: French luxury fashion brand Hermès is suing an American digital artist who created the MetaBirkins series of NFTs (Non-Fungible Tokens), a rapidly growing part of the cryptoworld.

Key takeaways 

  • An NFT is a unique, irreplaceable token that can be used to prove ownership of digital assets such as music, artwork, even tweets and memes.
  • The term ‘non-fungible’ simply means that each token is different as opposed to a fungible currency such as money (a ten-rupee note can be exchanged for another and so on).
  • Cryptocurrencies such as Bitcoin and Ethereum are also fungible, which means that one Bitcoin can be exchanged for another. 
  • But an NFT cannot be exchanged for another NFT because the two are different and therefore unique. 
  • Each token has a different value, depending on which asset it represents.
  • NFT transactions are recorded on blockchains, which is a digital public ledger, with most NFTs being a part of the Ethereum blockchain. 
  • NFTs became popular in 2021, when they were beginning to be seen by artists as a convenient way to monetise their work.

What are the other reasons for which NFTs are in high demand?

  • NFTs are a part of a new kind of financial system called decentralised finance (DeFi), which does away with the involvement of institutions such as banks.
  • For this reason, decentralised finance is seen as a more democratic financial system because it makes access to capital easier for lay people by essentially eliminating the role of banks and other associated institutions.

News Source: IE

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