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NFTs Explained: And How It Works with Asset Tokenization

Updated: Jul 5

NFTs Explained: How It Works with Asset Tokenization

Non-fungible tokens (NFTs) are unique digital certificates of ownership recorded on a blockchain, ensuring each token is one-of-a-kind. NFTs can represent anything from digital art to music, and even physical items, making them indivisible and preventing duplication. This article explains how NFTs provide new opportunities for asset tokenization, extending their use beyond the digital realm to include real-world assets, thus altering the way we understand ownership and value in the digital age.

Evolution of Non-Fungible Token (NFT)?

Today, NFTs are predominantly utilized for digital art, collectibles, and gaming assets, offering clear benefits such as the ability to attach visual metadata—both static and dynamic—to an NFT, thus allowing ownership of digital items in ways previously unattainable without blockchain technology.

The appeal of digitized collectibles and art has been demonstrated, attracting global collectors to this innovative method for permanently securing digital-native media. Beyond imagery, NFTs can hold various types of updatable data, referred to as dynamic NFTs. The essence of an NFT lies in its TokenID, a unique identifier that differentiates each NFT on its blockchain, This unique property, alongside the inherent benefits of tokenization, makes NFTs a perfect fit for many of the assets that exist today outside of the blockchain economy.

How Does Asset Tokenization With NFTs Work?

Asset tokenization with NFTs (Non-Fungible Tokens) involves converting ownership rights of physical assets into digital tokens on a blockchain. Each token is unique (non-fungible) and represents a specific real-world asset, such as artwork, real estate, or collectibles. This process starts by identifying and verifying the asset, and then creating a digital representation (an NFT) that holds all relevant details (metadata) about the asset, like its origin, current ownership, and authenticity. These tokens can then be bought, sold, or traded on digital platforms, providing a secure, transparent, and efficient way to manage and transact physical assets digitally.

Advantages of Using NFTs For Real-World Assets?

NFTs are particularly effective for tokenizing unique assets such as luxury goods, art, and high-value appliances, each possessing distinct characteristics. The process involves two main components: a TokenID and metadata. 

  • The TokenID serves as a unique barcode, distinguishing one asset from another—for instance, differentiating two pieces of artwork, even if they are by the same artist.

  • The metadata contains detailed information about the asset, such as provenance, condition, and ownership history, which can be updated over time to reflect new developments.

A crucial aspect of using NFTs for real-world asset tokenization is the concept of fractionalization. Unlike fungible tokens, which can be divided into smaller parts (e.g., owning 1.534 of a token), NFTs are inherently non-fungible and typically represent assets that are best held in whole units or are usually owned by a single entity. This characteristic makes NFTs ideal for unique assets that are not easily divisible.

Applications of NFTs in Real-World Assets?

NFTs Explained: How It Works with Asset Tokenization

This primarily falls into two categories: 

Tokenized representations of physical assets 

  1. A significant application is in the physical collectibles market, which includes art, cards, and sports memorabilia, valued at approximately $462 billion. For example, DualMint is advancing in this field by tokenizing popular sports icons' collectibles, such as Messi's jersey. They ensure each item is verified and stored securely, reducing risks like damage or theft, before offering these tokenized collectibles on NFT marketplaces for trading and sale.

  2. Ownership of unique assets with essential, updated metadata. NFTs are particularly useful for assets that need up-to-date information, such as assets that have details that regularly update, like a vehicle's mileage. These unique assets benefit from NFTs because the technology allows for the ongoing update of metadata, keeping all relevant asset information current and accurate. This updating feature reduces market asymmetries, enables better pricing algorithms based on the latest data, and enhances price discovery by increasing liquidity and accessibility for these assets.

The Role of DualMint in Asset-Backed NFTs?

DualMint enhances the integration of physical assets into the blockchain by ensuring each asset-backed NFT is securely linked to its real-world counterpart. Here’s how DualMint manages this process:

  • Phase One: Tokenization - DualMint utilizes a robust verification system to confirm the existence and status of physical assets, ensuring that each NFT accurately represents its real-world equivalent.

  • Phase Two: Data Enrichment - DualMint integrates real-time data updates to NFTs, maintaining accurate and up-to-date metadata that reflects any changes or developments in the asset's status.

  • Phase Three: Movement and Liquidity: DualMint supports the seamless transfer of NFTs across various blockchains, enhancing liquidity and enabling broader market access.

  • DualMint's Dual Provenance System: This unique feature ensures that each asset's history and authenticity are verifiable and secure, providing transparency and trust in the marketplace. This system is particularly beneficial for limited edition and high-value items, guaranteeing their provenance and history are preserved.

NFTs Explained: How It Works with Asset Tokenization

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