Non-fungible tokens (NFTs) are a special type of token that represents a unique asset. These crypto assets are indivisible and unique, making them non interchangeable while these also creates digital scarcity.
NFTs initially launched on Ethereum, using the ERC-721 token standard, but are now available on many other blockchains. In simple terms it can be said that NFTs are tokenized versions of digital or real-world assets. Where they function as verifiable proofs of authenticity and ownership within a blockchain network.
With the rapid evolution of blockchain technology and cryptography, NFTs can be considered as an outcome of it. With very high user attraction and involvement in NFTs as soon as it was introduced back in 2017, this is a crypto asset with enamors potential.
- Non-fungible tokens (NFTs) are blockchain assets that are designed to not be equal
- NFTs in crypto work through many different fields such as collectibles, online gaming, digital identity, certificates, etc.
- NFTs have the potential to be one of the key components of a new blockchain-powered digital economy
How non-fungible tokens differ from fungible tokens?
Fungibility refers to the property of an asset or a currency’s ability to maintain a standard value and uniform acceptance. It generally means that a currency’s history doesn’t affect its value and each piece of that currency is equal in value to every other piece.
For example, all fiat currencies are fungible. To act as a medium of exchange, each individual unit must be interchangeable with any other equivalent individual unit. A one-dollar bill is interchangeable with any other genuine one-dollar bill.
In this sense it can be said that a currency without fungibility is unstable. So, when something is nonfungible, although two items may look to be identical at a glance, each will have unique information or attributes that make them irreplaceable or impossible to swap.
In simple terms, Non-fungible tokens (NFTs) are blockchain assets that are designed to not be equal. This might not seem to be practical from a perspective of a currency but, blockchain tokens can represent more than just currency. In fact, the possibilities of blockchain assets are nearly endless.
There’s one more crucial difference you need to bear in mind. Fungible tokens are divisible, meaning you can send a fraction of one ERC-20 token. On the other hand, nonfungible ERC-721 tokens cannot be divided and must be bought or sold whole (Like baseball cards, where no one would want to buy half).
How NFTs work?
NFTs work essentially as a database entry for any type of good. Perhaps the simplest example is the most popular NFT in blockchain history, CryptoKitties. There are thousands of CryptoKitties in existence, but they are not created equal. Each is unique, has its own name, eye color, fur color, fur pattern, facial expression, and special features.
When you buy a CryptoKitty, you are gaining ownership of a non-fungible token that corresponds with that kitty. Some kitties are more valuable than others, and these CryptoKitty NFTs can be bought and sell your for varying amounts of fungible tokens like Ethereum.
NFTs in crypto work through many different fields such as, collectibles (similar to CryptoKitty NFTs), online gaming, tickets, digital identity, certificates, and licencing. The way in which NFT’s work for each of these can be identified as follows;
Collectibles: collectibles market extends in many directions. One major avenue is art collecting. Paintings and sculptures could be verified and authenticated by experts before creating a non-fungible token for a given piece of art. When the owner wants to sell the piece of art, they can simply list the non-fungible token on an auction as proof that the asset is real and they will become the true owner.
This kind of certification digitizes the process of provenance and prevents forgery and fraud in the art world because the ownership of art assets exists on the blockchain.
Online gaming: NFTs are revolutionizing the world of gaming. Often, characters in games acquire tradeable items like weapons, clothing, and even property. Creating non-fungible tokens for these assets and trading them for in-game tokens or even real-world cash. As a result, entire online digital economies for fictionalized goods have appeared.
Decentraland and the Sanbox can be considered as two main projects closest to the cutting edge of in-game blockchain economies, and they’re testing a complete game built around blockchain, AI, and 3D interaction with a digital world.
Tickets: tickets too are being managed digitally on the blockchain. If someone have a ticket to see Barcelona play Manchester United and other have a ticket to a local high school soccer game, both are similar items, but they have wildly different values. Both will grant admission to an event at a certain time and place, but they are hardly transferable, making that an NFT. It standardizes ownership of a certain category of asset, but the assets within that category can have very different market values.
NFTs have a great potential revolutionize the tickets industry, allowing individuals to easily trade them, which currently is difficult to do. Due to the extreme security of the identity, no chance is there for forgery.
Identity and Certificates: role played by NFT’s in verifying ones identity adds extra value to NFTs. One can receive a non-tradable digital token as their birth certificate, passport, and even as the driver’s license. Even though these tokens are non-tradeable, they would be able to interact and verify with the proper authorities. It allows to share this information voluntarily with employers, doctors, or anyone else who needs your personal info.
How to trade NFTs?
Buying and owning NFTs isn’t like typical cryptocurrency trading. In order to purchase a digital collectible or tokenized asset, most likely a digital currency like Ethereum is needed, although certain individual sellers may accept cash or trade.
Due to the uniqueness of NFTs, there aren’t any exchanges to trade them but transaction can be done with someone who requires a NFT or willing to trade their NFT tokens. Even though exchanges aren’t there for NFTs, there’re marketplaces which connect individual buyers with individual sellers. After conducting negotiations and determining price with the person who selling the token, it can be purchased directly from them.
Once an ERC-721 or ERC-1155 (majority of the NFT tokens are built on these) is bought, that will be added to the Ethereum wallet address just like an ERC-20 token. However, when that’s being viewed, it won’t say anything about the value but only the fact that it’s held in the wallet. Its value comes from whatever system the token is a part of.
For example, CryptoKitty NFT is linked to a drawing of a kitty with certain attributes. In order to sell that CryptoKitty, that need to be listed in an open market if the owner of that kitty is planning on selling it.
Where to buy NFTs?
After getting to know how to trade NFTs, the question arise as to from where can these NFTs be bought? Hence NFTs are somewhat new, there aren’t many well established marketplaces that NFTs can be bought, but some of the popular marketplaces for NFTs are, OpenSea, WAX.io, and Enjin.
Currently, OpenSea is the largest market for NFTs and it offers the ability to buy, sell, and auction off NFTs. In this marketplace, works of art, gaming items, digital land, digital trading cards, and many more can be found.
Wax.io is another large and active market for NFTs. This marketplace facilitate minting of ones own NFT apart from usual services of buying, selling, and creating auctions for NFTs. At Wax.io the transaction fee is minimal.
Conclusion
When thinking about possibilities of NFTs, it’s difficult to find a theoretical limit to the things NFTs could digitize. Once identity, qualifications, real-world property, and digital collectibles could all exist on the blockchain. They would be tokens can be kept, shown, shared, or sell.
NFTs have the potential to be one of the key components of a new blockchain-powered digital economy. Storing ownership and identification data on the blockchain would increase data integrity and privacy, while easy, trustless transfers and management of these assets could reduce friction in trade and the global economy.
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You can read more about NFT here What is so special about NFTs, selling for Millions?
