The concept of Non-fungible tokens, especially for those who are familiar with the cryptocurrency world, should not sound strange on hearing. Now it is possible that you have heard of them or not, which is why at this point, it is necessary to understand the meaning of Non-Fungible tokens, otherwise referred to as NFT.
What are Non-fungible tokens?
Non-fungible tokens are regarded as a one of a kind, digital items which are overseen and managed by an ownership blockchain; a good example includes; event ticket, game items, domain names, ownership record for physical assets, digital art; among others. Non-Fungible tokens are equipped with unique attributes, and they are usually linked to specific assets. Non-fungible tokens also serve the purpose of proving ownership of digital items; for example, game skins, and as stated earlier, they can also be used to prove ownership of physical assets.
When referring to non-fungible tokens, it is also necessary to understand the concept of “fungibility,” which can be explained as “replaced by another item or the ability to replace.” This might seem confusing, but using a practical example, it can be easily explained; now think about what you own from your phone to your laptop, precisely anything you can sell on eBay, all of those are classified as non-fungible assets while an excellent example of fungible assets, on the other hand, can be a currency. Ten dollars irrespective of the serial number on it is still ten dollars; so, the ability to replace a ten-dollar bill with another ten-dollar bill is a reason why the currency is fungible as from the example, it can be seen that a U.S dollar bill has the same value as any other U.S dollar bills.
The Difference Between Fungible And Non-Fungible Tokens
What are fungible tokens?
To better understand what fungible tokens are, it is essential to consider all the prominent cryptocurrencies we have in the world today, like, for example, bitcoin. Fungible tokens are digital assets built in other to make sure that each token is equivalent to the next. They can be traded among users for purposes such as purchasing goods and services, trading, and sale. In other words, fungible tokens are easily and fully exchangeable with each other as they can be transferred from one individual to another so as to make payment for certain goods or services.
Fungible tokens also serve the purpose of making payments and tracking balances. The properties of fungible tokens include; Identical (as all uniform tokens are uniform in mature),Interchangeable, and Infinitely divisible.
Why Non-fungible tokens are different
Fungible tokens, on the one hand, are used in the form of currency, while NFTs, also known as Non-fungible tokens, can be used for various other purposes other than just currencies. This means that Non-fungible tokens are the direct opposite of Fungible tokens. Non-fungibility tokens pave the way for a whole set of opportunities for blockchain technology. non-fungible tokens refer to tokens that cannot be replaced by another token of the same type.
To sight an example, let’s use a flight ticket. Now an airline is capable of issuing numerous flight tickets at once; however, the data printed on every ticket like destination, name, gender, age, is what makes it differ from another ticket. For instance, if an individual exchanged his/her flight ticket with another passenger, it could lead to disastrous consequences, including not being able to board the flight as well as reaching a different destination.
It is to this effect that non-fungible tokens are regarded as valuable due to its uniqueness. Collectibles can also be referred to as non-fungible tokens, mainly because of their non-interchangeability and uniqueness. In summary, the main properties of Non-fungible tokens include; Non-Identical and Non-Interchangeable.
How Do Non-Fungible Tokens Work
Bitcoin and Ethereum based ERC-20 falls under the category of fungible tokens. Ethereum’s non-fungible token ERC-721 is used by Decentralad and CryptoKitties. Using non-fungible tools and support, non-fungible tokens can easily be created on various smart-contract-enabled blockchains. NEO, TRON, EOS now also make use of Non-fungible**token** standards even though Ethereum was the first to be widely used. One significant benefit that non-fungible tokens and their smart contract allow is for detailed attributes to be incorporated like, for example, the owner’s identity, secure file links, or rich metadata. The effective ability for non-fungible tokens to prove digital ownership has attributed to the essential progression of an ever-rising digital world.
Non-Fungible Token Standard
One reason why the non-fungible tokens are regarded as powerful can be significantly attributed to standards. Standards provide a form of guarantee to developers that the asset will behave in a certain way and show how best to interact with the primary functionality of the assets. An example of a Non-fungible standard is;
ERC721 token standard is beneficial towards creating the non-fungible token. ERC721, pioneered by CryptoKitties, was the first standard that was used to represent non-fungible digital assets. A standard refers to a format or template which is generally agreed to be used or followed by developers. One major reason why developers follow the standard is that it makes code writing reusable, easier, and more predictable.
ECR721 is a token standard on Ethereum for Non-Fungible tokens. One major characteristic of ERC 721 is its uniqueness; when an ERC721 token is created, there is only one of those tokens in existence. They have helped in promoting the idea and application of one a kind asset on Ethereum.
Use Cases Of Non-Fungible Tokens
Verifying Personal Credentials
One use case for non-fungible tokens is in the aspect of verification of credentials or identity management. With the aid of digital identification, a person’s documents, for example, driving license, academic credentials, and passports can be safely and securely stored using the form of a non-fungible token on a blockchain.
As opposed to the traditional paper credential documents, which could provide the risk of being fake, a digital record stored on a blockchain is capable of providing legitimacy as well as transparency in relation to the document’s authenticity.
This is another essential aspect where non-fungible tokens have been useful. Software licenses are commonly known to appear as long special keys consisting of numbers and alphabets; however, a major risk they represent is that they can be stolen easily and distributed among people, which could, in turn, result in loss of revenue for the software provider. With the aid of non-fungible tokens, ownership can be limited and restricted to only a single individual who would serve as a legitimate user of the software.
Digital collectibles is a successful and popular use case of the non-fungible token can be seen in the case of CryptoKitties (a digital collectibles game) a virtual game that is Ethereum based, which was launched in late 2017 and features non-fungible tokens as CryptoKitties that can be sold, bought, and easily traded among the users on the platform as an asset. This digital collectible game leverages non-fungible tokens in other to provide users with a one of a kind in gaming experience as well as a means to earn money by trading game collectibles.
Non-fungible tokens provide numerous possibilities, some of which are yet to be explored. With time, these untapped potentials will be discovered and made accessible to the world. It is safe to say that the future of non-fungible tokens is bright, and eventually, we will see what more they contribute to smart contracts.