While the world has had enough time to get acquainted with Bitcoin and other digital currencies, yet another newer type of digital asset has been slowly but steadily gaining attention.
If you have been following the crypto space for some time now, there is no doubt you have heard about the non-fungible tokens (NFTs). Non-fungible tokens take blockchain applications way beyond the usual digital currency usage – that is, to say, the possible use cases of this technology are almost endless.
Today, we’ll dive into what these non-fungible tokens are in detail: what is their uniqueness and how can they benefit the current society.
While “fungibility” might sound a bit complex, it is really a very simple principle and in fact, all of us are already familiar with it. Fungibility refers to the concept of the exchangeability of a particular item/asset. For instance, a simple dollar bill is a perfect example – a $10 dollar bill in my pocket worth exactly the same as the $10 dollar bill in your pocket (unless it is, of course, a fake). We could exchange these bills and both of us would neither win nor lose – because the value of these assets is the same and they are interchangeable.
Yet, if we were to exchange, let’s say, plane tickets, we would have completely different experiences, based on the unique information present on those tickets. Thus, they are non-fungible – in other words, the kind of item is the same, but the value is different because of the information unique to that item. We can’t simply exchange plane tickets – as one would take you to the neighboring city, and the other might be for the plane going halfway around the world.
This uniqueness, or non-fungibility, is what makes NFTs so great. If we are to apply this concept to the cryptocurrency space, Bitcoin is a great example of a fungible token. BTC has a total supply for 21 million identical coins – any user could exchange one Bitcoin for another and the value would be the same.
But what about a non-fungible token?
Non-fungible tokens are not interchangeable – each of these tokens is unique. What makes them unique is the data or the information stored within the NFTs. The identifying data inside NFTs is stored in their smart contracts.
Another very important feature of NFTs: they are indivisible, meaning that you can’t send a portion of a non-fungible token to someone. However, it is very easy to do this with BTC.
NFT Applications: Beyond Digital Currency
As mentioned before, applications of NFTs are virtually endless. As a matter of fact, this class of tokens can serve as a foundation of a new blockchain-led digital economy. In contrast to fungible tokens, NFTs are able to facilitate the process of data and assets digitization.
Yet, if we were to look at the present uses of NFTs, there is a number of them, which varies from rare art to video games. Let’s take a closer look.
At the moment, digital artists experience a lot of difficulties protecting their copyright. On the web, lots of people disregard the uniqueness and talent behind numerous creations and simply use the asset however they please. With the use of NFTs, digital artists can sell their creations and buyers can showcase them in a virtual space – in this case, the proof of ownership would be stored on the blockchain.
One of the examples of current projects like that is SuperRare – a blockchain project that is creating non-fungible tokens that enable digital artists to link an image or a GIF they’ve created to a token. This NFT represents ownership of the item and allows the creator to retain their copyrights.
Another application of non-fungible tokens appears to be in the space of virtual assets. As an example, the sale of unique domain names is now gaining popularity with the help of NFTs. Just like that, The Ethereum Name Service is selling its “.ETH” domains as non-fungible tokens now, as does the Unstoppable Domains with its “.crypto domains”.
The real fame came to NFTs with CryptoKitties in 2017, when some of the assets on that platform were sold for hundreds of thousands of USD. CryptoKitties is a video-game that allows users to breed and collect unique crypto cats. Each cat created on CryptoKitties platform is 100% unique and impossible to replicate. Creators are able to buy and sell cats within the community, create cryptocats’ collections, and earn rewards.
Moreover, crypto-collectibles are gaining a lot of traction in the online world – these days, anyone can purchase tokenized versions of their favorite sports stars or Hollywood actors. In addition to that, users are using NFTs to digitize traditional collectibles, such as coins, stamps, or baseball cards.
Just like with CryptoKitties, non-fungible tokens can be utilized for digital assets that need to have unique traits and be differentiated from each other. Another example of a non-fungible token is Sandbox’s LAND token. The Sandbox is a virtual world where players can build, own, and monetize their gaming experience via Ethereum blockchain.
A LAND refers to a digital piece of real estate in The Sandbox world, which can be used by players to build interactive experiences. LAND is the epicenter of The Sandbox metaverse, which allows users to play and create games, earn tokens, and host contests.
Another type of non-fungible token in the Sandbox world is an ASSET – a token, which is created by players and that can be traded on the marketplace. The uniqueness and attributes of the ASSETS are defined by the Gems and Catalysts.
Catalysts are ERC-20 tokens that define ASSET’s tier and scarcity on the Sandbox Marketplace. Catalysts essentially add empty sockets to the NFTs that can be further filled with Gems. Gems, in turn, are the ERC-20 utility tokens that define ASSET’s attributes. Attributes define ASSET’s main characteristics that are displayed within the Sandbox metaverse.
In addition to all these features, NFTs in the gaming world allows players to easily transfer items even between games – which is largely prohibited in the off-crypto gaming space. For instance, players are not allowed to sell rare skins and weapons in Fortnite. NFTs create a great workaround for this issue.
Just like with any novice technology, the application and overall adoption of NFTs is not clear at the moment, but it is quite obvious that these tokens are causing up some stir in the crypto community. In addition, since non-fungible tokens provide the unique opportunity to digitize assets, possible applications of this technology cannot be limited.