Non-Fungible Tokens (NFT): A Brand New Class of Digital Assets

by Moriah | 07 Nov, 19:24
Non-Fungible Tokens (NFT): A Brand New Class of Digital Assets

Any currency, whether fiat or crypto, can be considered as a means of exchange, transfer or preservation of capital only if it is fungible. The fungibility of cryptocurrencies can be a key factor in their adoption at the global level. However, a new kind of Non-Fungible Tokens (NFT) has recently appeared, which has caused some confusion. They are believed to be a unique and important tool. Let's look at what the NFT is.

What are non-fungible tokens (NFT)?

NFT are new and unique representations of goods or assets that are expressed in the form of digital tokens. Through the use of cryptography, the NFT can prove the authenticity or ownership of assets and goods. For example, someone created a virtual work of art and tokenized it. In fact, the owner of the tokens is the direct owner of the created work of art.

NFT is a unique tool. No other product can substitute it. You can come up with a ton of uses. It is even possible that in the future they will create a individual, completely new class of digital assets. Or they will be closely intertwined with goods and assets from the real world, providing the opportunity to ensure property rights to them.

At the moment, some cryptocurrencies already have a certain level of fungibility within them. Let's say Bitcoin. Each new coin has the same value as the previous one. This situation is impossible when the cost of two different Bitcoins will be different. This is a prime example of fungibility.

However, some experts note that fungibility in Bitcoin is not absolute. For example, if some coins are used to commit criminal acts and subsequently they are added to the blacklist. After all, the Bitcoin blockchain is absolutely transparent and this is possible to implement. Blacklisted coins will have the same price as others, “innocent” coins? It is obvious that the Bitcoins that are blacklisted will lose the opportunity to be used, and accordingly, their utility will also tend to zero.

This issue has been discussed for quite some time, but there is no solution to the problem yet. However, the introduction of NFT may result in some rather interesting results and consequences.

NFT concept

NFT have become especially popular with the advent of blockchain games like CryptoKitties, which use non-fungible tokens on the Ethereum network. Some of these tokens were very popular and were bought for hundreds of thousands of dollars. Despite the fact that NFT protocols and standards exist separately from Ethereum, the most important standard that allows them to be created is the ERC-721 token standard on the Ethereum blockchain.

Thanks to this, the basis was created for creating, trading and similar actions in relation to assets that position themselves as non-fungible. However, they recently proposed the adoption of a new token standard - ERC-1155, which will help improve existing standards, as well as provide several additional benefits. For example, it will be possible to conclude contracts for non-fungible tokens together with fungible ones, which is currently impossible.

Also, the new standard will allow the implementation of many different NFT as part of the same transaction. Thanks to this, the exchange process will be even more efficient.

Types of NFT and their use cases

NFT create verifiable limitations on certain assets. Initially, this idea found itself in projects such as CryptoKitties, but subsequently, new NFT applications became more functional and started to be used outside the digital world.

As a result, non-fungible assets have become popular not only in the gaming industry. For example, on the Decentraland platform, using NFT, you can buy a land plot and build a house on it. Other projects, such as CryptoBeasties, Etheremon, also use NFT.

NFT are implemented in various games, which are based on the "skins" trade. Often this applies to various weapons or armour in FPS games. These elements can be moved not only within one game, but also from game to game. You can select the skin that is on the account in one game, and then transfer it to the account in a completely different game. You can also transmit player stories. Scoreboards, achievements, experience points from one game can be saved on the blockchain and used in another. NFT can also be used for unique identification. Thanks to this, you will not need to create an unlimited number of accounts in different games. This not only saves time, but also helps in interacting with other players, as they can recognize you as one and the same person in different games.

There is also talk of using NFT to crush a work of art into small pieces for sale to multiple owners at once. In the future, this can be applied in real estate.

NFT trading and exchange is currently available on several trading platforms, such as Rare Bits and OpenBazaar.

What awaits the NFT in the future?

The NFT concept is still in the early stages of its development, but even now it has great potential for applications. In the future, this technology can spread to a variety of markets. Currently, some projects already use NFT, such as EveriToken. We have the right to expect that in the future the use of NFT will only develop.

Thanks to NFT, people will be able to effectively trade in property or software licenses without fear of fraud.

It is likely that NFT is a new method of tokenizing goods and assets from the real world, which can subsequently be transferred or sold to several owners of individual tokens. Everyone who has a token will be considered the owner or one of the owners. This innovative use of technology may find a wide range of applications in the future.
 


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written by
Moriah

Blockchain specialist and crypto advisor


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