In simple terms, a non-fungible token aka NFT is an exclusive digital asset. Unlike Bitcoin which is a fungible asset, no non-fungible token is the same. Let us put it across like this, when we send 1 BTC to a user and receive 1 BTC, nothing changes for us. That is because each BTC is the same and this makes BTC a fungible digital asset.
On the contrary, an NFT is like Mona Lisa by Leonardo da Vinci. It is unique, it is scarce and that is what makes it valuable. One would never wish to trade Mona Lisa for Salvator Mundi as he will lose some value. On a similar basis, each NFT stores some form of Metadata that makes it a unique entry on the blockchain. For the matter of fact, even the NFT’s on similar blockchains are also not interchangeable.
How does non-fungible token empower the owner?
A Non-fungible token comes with a mechanism of storing rich metadata that is beyond the token symbol, supply, name, and balance. It stores the asset and ownership details too. As these details are stored on the blockchain, the owners and future buyers are assured about the provenance.
Non-fungible tokens or NFT’s made a name for themselves in 2017 with the release of CryptoKitties.
Do non-fungible tokens propose any value?
To understand the value it brings to the digital asset ecosystem, we need to peek into the evolution of NFTs. The attempts to create NFTs on blockchain started as early as 2013 with Color Coin built on bitcoin. But in 2017 first technical standard was defined for NFTs known as ERC721 on Ethereum blockchain. The standard is different from ERC20. That is because ERC721 tracks ownership and movements of individual tokens. And that is what makes a non-fungible token unique and valuable.
CryptoKittes, a cat breeding game was the first successful implementation of ERC721. For Cryptokitties players, each ERC721 represented a unique digital kitten that could not be replicated. And the most expensive CryptoKitty was traded in 2017 for $172,625(600 ETH).
This is when even big giants like Google Ventures realized the power of NFTs.
Recently, a blockchain startup Enjin partnered with Microsoft to create crypto collectibles called Microsoft Azure Heroes. We will use it as an example to explain how NFTs work in the real world.
In the real-world NFTs have some highly potential use-cases in art, antiques, vintage, property ownership and more. There were some major reasons why gaming became the first industry to push forward the actual implementation of NFTs. It was because the stakes were low and the gamers were already familiar with the concept of digital collectibles.
Future iterations of NFTs will most likely link the physical assets to these tokens for trustless transfers in the real-world. To state an example, identification certificates and software licenses can be traded as NFTs.
Many projects are already proposing better NFT standards like ERC115, ERC875, and ERC998.
Highlighting the characteristics of a Non-Fungible Token
- They are unique to the owner
- They are not interchangeable with another identical NFT
- Individual NFT has unique characteristics
- Each NFT represents ownership, rights, and privileges.
- NFTs are not divisible
How do they work and how to acquire them?
There are many ways in which an NFT can work. Here we will explain the working of NFT using the latest digital collectibles introduced by Microsoft.
Many developers are working on the Microsoft Azure platform. And now the developers can win blockchain digital collectibles. This will highlight the helpful developers on the platform.
A total of five badges have been developed by Enjin powered by the blockchain. Each badge is available in limited supply and will be rewarded to the individual who makes worthy contributions to the Azure platform.
Each badge is basically an ERC-721 token that can be stored in the Enjin wallet and traded just like any digital asset. Every single badge is unique because of its ownership and that would define the future value of the badge.
To acquire a badge (ERC721) token one needs to submit their candidacy and make a valuable contribution to the Azure platform. Once the Microsoft team reviews the “good work done” only then the members will receive the digital badger. The badge can then be claimed by scanning a QR code.
This is just one way of acquiring an NFT. The other NFT platforms like CryptoKitties, WAX, and Qtum have different methods.
The fungible crypto-currencies have already proved their importance in the digital asset ecosystem for over a decade now. The non-fungible tokens represent a very potential opportunity to tokenize the physical assets retaining the unique lineage. NFTs will never interfere with the existence of cryptocurrencies. As a matter of fact, NFTs will broaden the scope of blockchain in the real world.