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Non-Fungible Tokens (NFTs): Verifiable rare digital assets



Non-fungible tokens can represent assets such as art, collectibles, and real estate that are truly unique as no two NFTs are identical.



SUMMARY


A Non-Fungible Token (NFT) is a cryptocurrency token that is indivisible and unique. An NFT cannot be exchanged with another NFT, and the whole cannot be broken down into smaller parts and used. NFTs offer myriad opportunities for creating and trading digital assets - for example, original artwork and blockchain-integrated collectible games like CryptoKitties. NFTs are useful for proving the rarity and provenance of rare assets, both digitally and in the real world. Non-fungible tokens are mainly developed on Ethereum using the ERC-721 token standard.



CONTENT

  • Fungible and non-fungible features of tokens

  • NFTs provide the opportunity to create and trade rare and unique digital assets

  • Non-fungible tokens use the ERC-721 token standard

  • Use cases for NFTs

  • The future of non-fungible tokens


FUNGIBLE AND NON-FUNGIBLE FEATURES OF TOKENS


A fungible asset refers to an asset that is exchangeable with any other unit of that asset. For example, a bitcoin (BTC) is the same as any other bitcoin in circulation - the same is true for dollars, euros, or ether (ETH). Fungible assets are also divisible, meaning they can be split into smaller units that have the same properties. Fungible assets are essentially indistinguishable from each other. These properties are crucial for an asset to be used as a means of payment. Non-fungible tokens, on the other hand, are crypto-tokens that are indivisible and unique. While NFTs are based on smart contracts just like ETH and DAI, NFT contracts contain specific information that distinguishes each NFT from the next. For example, one NFT cannot be exchanged with another NFT, and the whole cannot be broken down into smaller units and used. These properties denote non-fungibility, hence the name NFT.


NFTS OFFER OPPORTUNITIES TO CREATE AND TRADE RARE AND UNIQUE DIGITAL ASSETS


NFTs are demonstrably rare assets. Each non-fungible token contains a computerized code that confirms it is the only asset with its specific digital identity. This important feature is useful for creating unique digital assets and can even be used to represent rare physical assets whose provenance (historical record of ownership) can be tracked and cryptographically verified through the underlying blockchain protocol. The possibilities for exclusive and rare items to be traded - such as digital art, collectibles, or game pieces - are endless. Platforms such as Open Sea, Super Rare, and Nifty Gateway are bringing NFTs to an ever-growing consumer base.



NON-FUNGIBLE TOKENS USE THE ERC-721 TOKEN STANDARD


Ethereum is now the most popular blockchain for creating NFTs, as NFTs are usually created using the ERC-721 token standard. This standard specifies a minimum set of features that any non-fungible token should have, but does not restrict possible additional features of NFTs.



USE CASES FOR NFTS


  • Creation of digital or crypto collectibles.

  • Managing ownership of digital items in games with blockchain integration.

  • Proving the authenticity of digital art, while allowing artists to retain their copyright and intellectual property rights.

  • Developing a digital identity system that allows users to control their data from one place.

  • Enable fractional ownership of high-value assets, such as real estate.

One of the first and most popular applications for NFTs is the Ethereum-based game CryptoKitties, where players can buy, sell and breed digital cats. CryptoKitties launched on 28 November 2017 and within two weeks had more than 150,000 users and $15 million in transactions. A single CryptoKitty sold for $170,000, making the platform a viral sensation and attracting a new audience of Ethereum players and mainstream attention.


CryptoKitties was successful, but this success led to serious transaction congestion on the Ethereum network. The resulting scramble to scale the network - and the large amounts of capital exchanged for digital cats - prompted many news organizations to cover CryptoKitties. As a result, blockchain became known as a technology that can offer more than just cryptocurrencies.



THE FUTURE OF NON-FUNGIBLE TOKENS


Since then, NFT gaming has seen tremendous growth. Dapper Labs, the company behind CryptoKitties, partnered with other NFT providers in January 2019 to enable interoperability between gaming platforms. This means that a native NFT from one platform can now be used on another. A number of mainstream organizations, including game developer Ubisoft and the National Basketball Association (NBA), have developed NFT projects.


The potential of NFTs has expanded significantly beyond the gaming sector. Companies and blockchain projects are exploring how to use non-fungible tokens for identification, certification, and ticketing, as well as for granting fractional ownership of digital and real-world objects. NFTs can be used wherever clear ownership and traceability are required.


Although NFTs still face challenges in terms of interoperability and scalability, the technology has proven its usefulness in proving uniqueness, scarcity, and ownership of digital and real assets. Already used in blockchain gambling and collectibles, NFT technology has proven to be a major growth sector for the blockchain industry as use cases expand to include digital proof of identity and representation of scarce real-world assets.

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