What is an NFT?
Non-Fungible tokens is a term you may not have come across in the crypto space. You may however, have heard about projects that employ this type of token.
To understand what a non-fungible token is, we must understand what fungibility is:
In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable.
If a good, asset or token in this case, is fungible, then it can be interchanged or replaced by another identical token. Being non-fungible therefore means that a token is absolutely unique and is distinguishable from any other token.
The $USD is fungible in nature. $1 is exchangeable for $1. These individual dollars are essentially indistinguishable from one another. Fungibility is a core characteristic of all fiat currencies.
Non-fungible tokens are therefore completely unique expressions of an asset on a blockchain. In reading and learning about the Ethereum platform, you may have heard about Crypto Kitties. Collectibles are one early implementation of non-fungible tokens and the analogy of baseball cards is often used to describe how non-fungible collectables work. Many people are familiar with the idea of limited edition baseball cards. Non-fungible tokens work in the same way and are unique representations of an asset.
Working with Blockchain technology, these unique tokens are public and verifiable on the blockchain network. Non-fungible tokens create a form of digital scarcity that can be verified without the need for a centralised authority to confirm validity. It is this fundamental scarcity that gives the tokens their value.
The famous Crypto Kitties projects is widely known across the cryptocurrency space. Back in December of 2017, the Crypto Kitties game created a huge amount of congestion on the Ethereum network, causing it to reach all time highs in transaction throughput and slow it down significantly. However, it is the perfect example of a non-fungible token.
“CryptoKitties is a game centered around breedable, collectible, and oh-so-adorable creatures we call CryptoKitties! Each cat is one-of-a-kind and 100% owned by you; it cannot be replicated, taken away, or destroyed.”
As with Crypto Kitties, Non-fungible tokens can be created on the Ethereum network. Moat NFT’s utilise Ethereum’s ERC-721 protocol. The ERC-721 protocol sets out a standard set of criteria and functions in the form of a smart contract that must be met to be owned, managed, and traded.
Another project in the crypto space that utilises non-fungible tokens is Decentraland. A play on words for decentralised land, Decentraland issues unique plots of virtual land on the blockchain. According to their website, it is a virtual world that runs on open standards:
“…you can purchase land through the Ethereum blockchain, creating an immutable record of ownership. No one can limit what you build. With full control over your land, you can create unique experiences unlike anything in existence. Your imagination is the limit: go to a casino, watch live music, attend a workshop, shop with friends, start a business, test drive a car, visit an underwater resort, and much, much more”
What’s more is that Decentraland is fully immersible through Virtual Reality (VR). You can use your own VR headset to become fully immersed in a 3D interactive world.
Again, with Decentraland, you lay claim to your own unique plot of virtual land. Utilising non-fungible tokens for a virtual world is a very interesting use of this technology. With the rising popularity of Virtual Reality, virtual land on the blockchain my just be good investment for years to come.
Other Use Cases
There are a whole host of other use cases of non-fungible tokens. Anywhere that unique
Plane tickets, concert tickets, tickets to go and see your favourite sports team. All of these are unique and can be represented on the blockchain with a non-fungible token. Expressing tickets on the blockchain with NFT’s would also help to reduce the amount of fraud ticketing for events.
This is another area that is ripe for disruption. Smart contracts and NFT’s can be used to uniquely express ownership of real estate as well as land on the blockchain.
As is the nature of the digital world we now live in, a lot of art that is created is digital in nature. But how can we prevent digital copies being made of digital art? Non Fungible Tokens can represent the original unique pieces of digital art and prevent the copy, distribution and sale of counterfeits. Projects like Po.et are vying to make this use case a reality for artists.
Our identity is intrinsically unique to each of us. Again, NFT’s can help to create a digital representation of our unique identity on the blockchain. Over 16 million people were victims of identity fraud in 2016 in the USA alone. Projects like The Key are solving the problem of identity fraud on the blockchain.
We are still in the early stages of not only blockchain, but the use of Non-Fungible Tokens. Some of the use cases mentioned above serve to solve real world problems by creating a more transparent and immutable way of tracking validity of assets. No doubt, future use cases will also emerge, but the time and cost savings that could be achieved with these examples could be very compelling.