Non-Fungible Tokens (NFTs) are being talked about a lot more these days and Binance, a leading cryptocurrency exchange has taken the opportunity to provide some answers to questions on NFTs.
Q: Kindly give a detailed explanation of what NFTs are.
A: NFT stands for non-fungible token and is a secure digital file that validates ownership, and is stored on the blockchain, where each NFT can represent a unique digital item, and thus is not interchangeable. No two NFTs are the same. NFTs can represent digital files such as art, audio, videos, certificates, items in video games and other forms of assets in the physical world. While the item itself can be copied, the NFT that includes certification of ownership cannot be duplicated. NFTs allow creators to earn by tokenising their work.
Q: The focus appears to be art. What are some other areas and applications where NFTs can be applied?
A: In general, NFTs help verify authenticity and prevent piracy and so, beyond art, this is valuable in multiple industries. It can be used to provide proof of ownership in real estate (title deeds), in-game assets in GameFi, ticketing at events, storage of medical records, ensuring product authenticity amongst others. While lots of use cases are still in their infancy, there are numerous everyday applications for NFTs.
Q: There are concerns that NFTs and other elements of decentralized finance (DeFi) are driven entirely by speculation and not value. What is your response to this?
A: At its core, DeFi enables open, free, and fair financial markets that are accessible to anyone with an internet connection. By this alone, the value is immense. Users typically engage through decentralized apps and tokens, most of which run on Ethereum, BNB Chain and so on. There’s however no doubt that some – for example tokens are driven by speculation. This is why at Binance, we always encourage everyone to do their due diligence and ensure they research as much as they can.
It’s important to also think about what people value today and why they pay for gaming items e.g pokemon cards or for blue checkmarks on Twitter, same reason why people care about how many followers they have on Instagram, digital items have value to them whether it’s for social status or a thing of special interest, the same trend applies to NFTs.
Q: Regulators are skeptical of DeFi and recent events give credence to their concerns. What can be done on the part of DeFi players to better engage regulators?
A: Decentralized entities are run by distributed communities, with no central authority. As such, for regulators to engage, they will typically interface with the on-ramps which could be fiat-to-crypto exchanges to ensure they incorporate due diligence and know-your-client initiatives.
As a company, we believe regulatory collaboration with key stakeholders in the blockchain ecosystem is essential. We at Binance are actively keeping abreast of ever-changing policies in the crypto industry and continue to take a collaborative approach in working with regulators, ensuring a fair playing field – as consumer protection is important to all of us.