Unraveling NFTs (Non-Fungible Tokens)
NFT stands for “Non-Fungible Token”. Something being non fungible means it is unique and cannot be replicated or divided. In the context of cryptocurrencies, an NFT means that each token on the given blockchain network has some unique characteristics, which makes it different from the rest. Each token contains some small bits of data which is unique to the token. As in the case of all blockchain networks, NFT’s have provenance; i.e. its uniqueness can be proven.
Let’s look at some examples to understand this further.
- Banknotes, are fungibles, meaning they can be exchanged for one another. One can exchange a $10 bill with another $10, and both of them would have the same value. One could also divide 1 x $10 bill and get 2 x $5 bills. The collective value of 2 x $5 bills would be the same as 1 x $10 bills.
- Bitcoin, is a fungible token. One can send someone a Bitcoin and receive another Bitcoin in exchange, and both would have the same value. Similarly, 1 bitcoin can be exchanged with 2 x 0.5 bitcoins and it would still mean the same thing.
- A plane ticket, on the other hand, is a form of a non-fungible asset. One cannot simply exchange one ticket with another, and even if it happens, both tickets would have a different unique attribute associated with them; i.e. seat number. Similarly, one cannot share part of the ticket with someone else (non-divisible). Part of the ticket won’t be worth anything on its own.
- CryptoKitties were some of the very first non-fungible tokens. Each blockchain-based digital kitten is unique. If one sends a CryptoKitty to another and receives a CryptoKitty in return, both will be different from each other.
NFT (Non-Fungible Tokens) can not be replicated or divided, and they provide a means to validate the authenticity and history of digital assets
What are the use cases for NFTs?
Considering the proven use cases so far, we see NFTs being used for tracking ownership of digital assets and virtual goods.
The first and foremost use case of NFTs is to use it to prove the authenticity and ownership of digital art and collectibles. The same function can be extended for other digital assets such as digital real estate (Decentraland), domain names, etc.
Gaming is one of the major use cases for NFT. Apart from trading digital collectibles in games, it can also be used for recordkeeping of players’ stats and achievements. Not only it could enable a smooth transfer and validation of records, NFT tokens could also be used across different games.
Software licensing and media copyrights
Another effective use of NFT is to use it for software licensing and media copyrights. NFTs can help negate piracy and allow users to buy/sell licenses. It will also enable artists to enforce copyrights and deny piracy.
NFT’s can be also used as a payment medium; i.e. exchanging tokens for services, products, etc.
With the use of NFT’s, some of the current challenges like forgery and mass ticket hoarding can be resolved. The tickets can be independently verified and authenticated on the blockchain.With the use of NFT’s, some of the current challenges like forgery and mass ticket hoarding can be resolved. The tickets can be independently verified and authenticated on the blockchain.
Is anyone using NFTs?
As mentioned above, CryptoKitties was one of the early use cases of Non-fungible tokens. The game was based on the Ethereum blockchain (ERC-721 standard, now moved to Flow). Users collect, buy, breed, and sell digital kitties. Each of the digital kitties had its own unique characteristics and the information was stored on the blockchain.
Decentraland is another game using NFTs for digitally scarce land. Users can purchase, develop and sell the land in Decentraland using Non-fungible tokens.
Sorare, is another game, a fantasy soccer game, where players buy, sell, trade, and manage a virtual team with digital player cards.
The Canadian musician Grimes recently sold her digital art collection for $,7500 apiece, totaling $6 million in sales.
The list goes on…
Future of NFTs
So far, the NFTs have been mostly used for artwork, gaming, and crypto collectibles. A breakthrough can be expected once we can use NFTs safely to record, track, and prove ownership of physical assets; like real estate, artwork, wine, memorabilia, etc.
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