When we hear about crypto in the mainstream media, it is usually describing stratospheric gains or declines in Bitcoin although now there’s a new phenomenon called NFTs that everyone is talking about!
Whilst Bitcoin has been touted as the digital answer to currency, NFTs are being viewed as the digital answer to collectibles (or anything that is considered “one-of-a-kind” that can be bought and sold like any other piece of property, but they have no tangible form of their own.)
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If something is non-fungible then it’s unique. It can’t be replaced with anything else!
Non-fungible tokens are representations of such kinds of assets that have opened a whole new world of possibilities. Let’s explore how NFT makes the concept more powerful by looking at its characteristics.
The Properties of NFTs
As currently defined, NFTs have the following properties, as mentioned in the Non-Fungible Token Bible.
- Standardization: The format in which an NFT comes defined is standard, so any platform supporting it can access the information related to that asset. This property prevents the asset from being constrained to a single domain, thus making it reusable or inheritable in other places.
- Interoperability: The definition of non-fungible tokens and changes of parameters may also be valid and understood beyond the place where it was first created. Parameters such as ownership, transfers, or access rights, for instance. Also, the changes related to the asset can be checked by anyone.
- Tradeability: This frees any item from the dependence of having to be sold in certain specialized places. With all the related information accessible, anyone can sell an NFT in any compatible market.
- Liquidity: Sites that offer a market for more types of items attract a greater number of interested parties, expanding the potential demand for any type of asset and increasing its liquidity.
- Immutability: Non-fungible tokens live on a blockchain. There is no need to belabor this point, is it?
- Programmability: With this last property, our heads can spin, imagining the possibilities it provides, right?
Well, the time has come to talk about numbers, ERC numbers of course— and we all know the number 20 that blesses our crypto wallets with precious, and not so precious, tokens.
NFTs however are defined in the ERC721 standard. We are referring to pure non-fungible asset tokens.
Let us return for a moment to the above definition of this idea. Value is the key aspect of fungibility for NFTs, not to be confused with the non-fungible price.
“Price is what you pay; value is what you get.”
In addition to the physical integrity of a given asset, its market value can be affected by the assigned emotional component, its useful life, or the time we can make use of it in a time-sharing regime.
These types of uses refer to semi-fungible assets and are defined in the ERC-1155 standard. It introduces classes that may include items sharing some set of parameters that define them.
As you might guess, this brings us to a small drawback. New standards may require new wallets which would force us to have to use more applications.
Fortunately, the DeFi industry is always vigilant and has already created solutions like the folks at Eidoo that integrate a non-fungible token Manager within the same ERC20 wallet application. So, no more passwords to remember, forget or repeat — just the one for accessing your crypto walllet.
What is really important is to keep the distinction between the two cases — non-fungible and semi-fungible — because that is where the magic happens.
As it appeared in the news recently, the most scandalous and evident use has been that of digital assets of particular relevance and cuteness, also known as Crypto Kitties.
Crypto kitty not feeling fungible!
But let’s be rigorous and ask ourselves; what’s so interesting about the non-fungible Crypto Kitties?
The truth is Crypto Kitties demonstrated the power behind non-fungible tokens by integrating their lovely parameters on the metadata, defining them univocally to create an NFT that represented each kitty without any possibility of error.
Beyond sensationalism, the truth is that the NFTs have had a way beyond, reaching the world of collectibles. This type of item has already benefited from an important development with the appearance of the Internet and social networks and could be about to live a golden age thanks to an ERC document.
Art is another type of asset ideal to make use of a non-fungible token format. At this point, art is constrained to the supported format requirements (JPG and PNG), but as things develop, we might see other formats or techniques. Who knows, maybe the return of steganography on image, music, and video integrated with viewers and players.
Furthermore, a particularly interesting, almost natural, use of NFTs has been seen in the gaming world. Quickly, the sharp minds in the MMORPG industry saw the possibility of defining assets and metadata (both their characteristics and their cool names) as tokens so that ownership would be better represented to the community.
In essence, non-fungible tokens are inherited assets to be grouped and sold with parent assets. In other words, if you transfer the ownership of a character, not only game perks but also its NFT-registered assets will go with it.
So far, we have mentioned the most obvious use cases, but what other fields could be opening up already?
In general, any product where provenance is a key component of its value may be a viable candidate to enter the market as a non-fungible token. These types of products usually have to be backed by certificates and the sites that sell them act as auditors and guarantors of the veracity of the item. But, hey, that’s what the blockchain with its immaculate transparency is for.
Products that are more commercial than unique pieces but try to retain a certain aspect of exclusivity due to their branding or limited editions are also very NFT-able.
However, this is not going to happen. Because it is already happening. Exclusivity is the ultimate concept that fits in the non-fungible token catalog. Either you have it or you don’t.
There are already initiatives that point in this direction on the part of the National Basketball Association (NBA), National Football League (NFL), Ultimate Fighting Championship (UFC), Formula 1, Louis Vuitton, Samsung, and Nike.
NFTs could become the next big thing in the crypto ecosystem. In addition to their suitability for traditional assets, the inclusion of classes with ERC1155 makes it possible to speculate about new types of non-fungible tokens applied to DeFi, derivative products, insurance, e-identity, last wills, etc.
It is difficult to predict with certainty where the innovation will go but it is certainly something that goes beyond the interest of digital cat owners.