NFTs are digital representations of value, identity or ownership with uniquely identifiable information. And this information is stored in smart contracts on a blockchain platform.
What are fungible and non-fungible tokens?
A token is a thing which serves as a visible or tangible representation of a fact, quality, or ownership. For example, your ID card shows that you are a student of a college or an employee of a company. And your driving license shows that you can drive. Another example could be your train ticket or the fixed deposit receipt issued by your bank. These are tokens that represent value. Also, tokens can be physical or digital.
So, a token is a representation of something in its particular ecosystem. It could represent value, a stake, or a voting right.
The difference between fungible and non-fungible tokens
You can exchange a rupee note (with a specific serial number) with another rupee note (with a different serial number). The value of the note remains unaltered. So, the rupee notes are fungible. Similarly, a digital currency like Bitcoin is fungible. Hence, fungibility is the interchangeability of a good or an asset with other goods or assets of the same type.
Now imagine you have in your stamp collection, a unique stamp that you obtained during an important national leader’s centenary celebration. You can’t exchange this stamp with any other stamp because it is unique and has a value that any other stamp won’t match. Another example could be that you borrow a laptop from your friend. She is going to object if you return a different laptop or break it up into a monitor, a hard disk and so on. This is an example of non-fungibility. Non-fungible tokens are not only unique, they are also not divisible.
You can write a smart contract on the Ethereum blockchain and create a digital token which contains specific information that uniquely identifies that token individually. The smart contract can store this unique information. Since this individual token is so unique, you can’t exchange it for any other token. In other words, this token is not fungible. So, NFTs are unique, non-fungible tokens created on the Ethereum blockchain. Because they are not fungible, they cannot act as digital currencies such as Bitcoin.
The earliest examples of NFTs were the Cryptokitties. These were created on the Ethereum blockchain using its standards called ERC 721. This is a gamified collectible token that lets you buy ‘kitties’ that you can play with, breed, and trade! You can also create NFTs on several other blockchains such as NEO, EOS and TRON.
How can you use NFTs?
You can create digital assets that need to be unique or differentiated from each other, either to prove their value or scarcity or even ownership. Also, NFTs can represent artworks, virtual assets like virtual land parcels or ownership licenses. Unlike fungible tokens that you can trade on regular exchanges, you can trade NFTs only on digital marketplaces such as Openbazzar or Decentraland’s LAND marketplace.
Who are the major players in the NFT space?
- Decentraland
This company is the largest fully decentralized game world and uses an ERC20 token called MANA to help users buy and sell virtual land parcels. Decentraland builds these assets using an NFT called LAND. - Super Rare
This is a leading player in the NFT-powered digital art space. The company offers a digital marketplace for rare and high value digital art. An immutable blockchain protects the rights over these pieces of arts. - Tera Virtua
This company is a major player in the growing market for collectibles, a form of NFTs. It helps fans store and display their collectibles on their platform.
What is the future of NFTs?
Currently, several video games use NFTs. NFTs can represent in-game assets such as game skins, swords and other virtual assets. A gamer can port these assets to other games or even trade them with other players. But the potential of these tokens is far higher. These tokens can represent digital assets and virtualize even real-world assets such as property. Also, they can represent partial or fractional ownership in assets. You can also use these tokens to verify the ownership as well as the provenance of assets.
The day is not far off when our digital wallets could have proof of every certificate, license and asset that we will own.
