Non-Fungible Tokens (NFT)

WebTalk

Non-fungible tokens (NFT) are unique crypto tokens that cannot be increased indefinitely. They are also often referred to as digital collectibles because NFTs can create scarcity in the digital space. Digital trading cards, clothing and other works of art are part of this and have already been traded at prices in excess of 100,000 euros.

What is a non-fungible token (NFT)?

Non-fungible tokens (NFT) are unique crypto tokens that cannot be increased indefinitely. They are also often referred to as digital collectibles because NFTs can create scarcity in the digital space. Digital trading cards, clothing and other works of art are part of this and have already been traded at prices in excess of 100,000 euros.

What is the difference between fungible and non-fungible ?

To understand what makes NFT so special, one must first understand the difference between fungible and non-fungible. When something is fungible, it means that something is homogeneously interchangeable. Examples of this from the real world are banknotes or precious metals: one gram of pure gold is worth as much as another gram of pure gold. And if you give someone a ten euro note, it wouldn’t matter if they didn’t return the exact same note.

That all changes when something is non-fungible. Although two items may appear identical at first glance, both have unique information or properties that make them irreplaceable or non-interchangeable. 

An example of a non-fungible good might be an airline ticket. Airline tickets look the same at first glance, but each ticket contains a different passenger name, destination, and seat number. Therefore, exchanging one flight ticket for another could have serious consequences. The situation is similar in the digital space with NFTs. Another example would be Internet domains, since each domain can only exist once.

What distinguishes non-fungible tokens from normal tokens?

Non-fungible tokens can limit and uniquely represent things in the digital space. Many other tokens or cryptocurrencies such as bitcoin or ether are fungible. If you send someone an ether and get an ether back, you wouldn’t notice any difference. 

The same applies to tokens: most tokens so far are based on Ethereum’s ERC-20 standard. For the sake of simplicity, you can imagine that each of these tokens represents a 10 euro note. If you send this token to someone and get another one back a week later, it will be the same as the other. 

That all changes with non-fungible tokens. Currently, most NFTs on the Ethereum blockchain use what is known as the ERC-721 standard. Tokens using this standard can be compared to Pokémon or Yu-Gi-Oh trading cards. Each individual token contains unique information and a different level of rarity. 

There is also another major difference that needs to be considered. Fungible tokens are divisible, meaning it is possible to send or own a fraction of Bitcoin or any other ERC-20 token. Similar to cash, where you can pay with a ten euro note and get change. 

On the other hand, non-fungible tokens cannot be divided and must be bought or sold in their entirety. Just like with trading cards, where nobody would think of buying only half a card.

What are use cases for non-fungible tokens ?

Use cases for NFT are virtually endless. In fact, non-fungible tokens can serve as the basis for a new digital economy based on blockchain technology. With the help of NFT, the real world can merge with the digital world. In addition to depicting scarcity and uniqueness in the exclusively digital space, this also makes the digitization process of objects and assets from the real world into the virtual much easier.

What are the current biggest applications for NFT?

gaming

The sale of rare weapons or skins is currently prohibited in popular games such as World of Warcraft, Fortnite, CS:GO or League of Legends. It is also not possible to use items or skins from one game in another game. With NFTs it would be possible to transfer objects and clearly assign ownership rights. This would solve some of the biggest annoyances that avid gamers face.

Arts

In the digital world, protecting their copyrights and making money is often a nightmare for artists. Through NFTs, someone can buy an artwork and showcase it in a virtual space, with the blockchain proving ownership. Artists can thereby protect their copyright and secure a larger part of the profit made from the sale. Additionally, it is possible to configure an NFT to create a recurring revenue stream where you can earn from each subsequent sale of the NFT. Recently, some NFTs have sold for hundreds of thousands of euros and many expect the art NFT sector to grow enormously in the future.

collectibles

As already seen with the CryptoKitties, the fantasy football game Sorare or NBA Top Shot by Dapper Labs, NFTs are already being used to create entirely new types of collectibles. For example, Sorare allows you to buy tokenized versions of your favorite players. The principle is very similar to the Panini collection pictures that many people remember from their childhood. The same principle is now applied in the digital world, in the form of digital collectibles, which digitally represent ownership of a trading card.

financial assets

The NFT virtual asset market is large. On platforms like Decentraland and Cryptovoxels it is possible to buy plots of virtual land. These lots have unique properties, just like real-world lots. Within virtual worlds, these plots of land are already being traded for tens of thousands of euros. In addition, the Unstoppable Domains website has tokenized website names. Any website name can thereby be turned into an NFT that can be freely traded by anyone.

This area of ​​NFTs is still in its infancy, but it is possible to tokenize real-world assets such as artworks or record deals as NFTs. Here, the NFTs are used to prove that someone owns a work of art (partially) or to settle claims from royalties.

identities

Everyone has unique characteristics – from their looks to our educational qualifications and medical history. Using non-fungible tokens, it is possible to tokenize this identity. So you can represent all the data that exists about a person in the form of an NFT and give people back control of their data.

What are the pros and cons of non-fungible tokens ?

+ New revenue streams in gaming, arts, sports and technology.

+ NFT can bring cryptocurrencies and blockchain technology into the mainstream.

+ NFT can change the way we think about property and enable effective international standards.

+ NFT can become the foundation of virtual economies.

– Building decentralized apps for NFT can be tricky and time-consuming.

– Much more simplification is needed to make NFT attractive to less crypto-savvy people.

– The hype surrounding NFT harbors the risk of a bubble forming.

We will be happy to hear your thoughts

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