Even years later, blockchain games like CryptoKitties are at the top of dApp ratings. News headlines are more often overtaken by stories of non-fungible tokens selling for hundreds of thousand dollars. What are crypto NFTs and why are people saying it is one of the most promising blockchain technologies? The ChangeHero team prepared a guide to explain what are NFTs and how to participate before the trend blows up.
What are NFTs?
First of all, let’s sort through the term. What does non-fungibility mean?
Fungibility is a property of an asset which means it is interchangeable with any other asset of the same value. On the contrary, non-fungibility is synonymous with uniqueness. Even if two nonfungible tokens have the same value (for example, represent the same in-game item), they are not interchangeable.
How can this be useful? Like in the example above, NFTs can represent in-game assets like items, cards or pieces of art. Each token represents a unique unit of value, even if they belong to the same category. Basically, non-interchangeability is useful to determine ownership of an asset that NFT represents.
How did it start?
What NFTs are today is not the form they have always had. The first tokens were actually developed for the Bitcoin blockchain and were essentially non-fungible. They were called Colored coins and are considered predecessors of modern tokens. Another second-layer network to Bitcoin, Counterparty housed the first tokenized directory for Rare Pepes. Each of the entries in the library is unique and represented by its own Counterparty token.
Then, in 2015 Ethereum introduced smart contracts. Now, everyone could issue and transact with tokens even more easily. The only catch is that back in 2015 there was only one token standard — ERC-20. Nevertheless, Decentraland, CryptoKitties, CryptoPunks and EnjinCoin started implementing tokenized assets in games and digital art. It was after the success of these projects that the ERC-721 standard was developed in 2018.
What are NFTs standards we are talking about? The next section will explain.
How do they work?
NFTs are not exclusive to Ethereum, among the platforms that support them are Ravencoin, Qtum, EOS, TRON… In essence, though, they are the same. Each token is assigned a digital hash that distinguishes it from every other NFT of its kind.
NFTs cannot be directly exchanged with one another because of their unique nature. Instead, they can be put on sale on special marketplaces for a cryptocurrency of choice.
What are NFTs other properties? They are:
- Non-interoperability: a nonfungible token cannot represent different assets in different games or apps;
- Indivisibility: there can be no more than a set number and no less than one of an NFT;
- Indestructibility: the data is immutably recorded on the blockchain;
- Verifiable: like any asset on blockchain, an NFT can be traced back to its original creator.
In case with Ethereum, there are now two standards which can be used for NFTs. ERC-721 is strictly non-fungible and unique. ERC-1155 is semi-fungible, and allows for class tracking rather than object tracking. For example, in a game they can be used to represent consumable items like ammo or potions. This standard is also handy because it saves computing power of the network, and therefore, transaction fees.
Non-fungible Tokens: Use cases
NFTs became a huge step in tokenization of various assets on blockchain. Here are only a few examples how they can be used:
- CryptoKicks are a patented product of Nike. These are tokens that are sold together with the shoes and are used to verify authenticity of the product;
- Sports cards and other collectibles are pretty much the real life equivalent of a classic NFT. Football clubs like Juventus collaborate with blockchain developers such as Sorare to issue player cards. Fans can buy them to show support to the club and put them to use in the Sorare’s fantasy soccer game;
- Another use case where NFTs can see a lot of potential is music distribution. For example, musician DJ 3LAU offered his latest album for auction as an NFT. The winners can redeem their tokens for vinyls, custom tracks and streaming subscription. This scenario cuts out middlemen such as distributors, who claim large shares of musicians’ profits.
What are some other non-fungible tokens examples that people actually use? Wait no more, read about them next!
Most Popular Non-Fungible Tokens
What are NFTs that are the most popular? According to Etherscan, here are a few examples with categories:
- Unstoppable Domains and Ethereum Name Service: human-readable blockchain addresses;
- Sorare and CryptoKitties: unique in-game collectibles;
- Hashmasks and Rarible: community-run digital art marketplaces;
- TerraVirtua NFTs: a VR/AR digital art gallery;
- Sandbox’s LANDs: virtual real estate.
If you’re asking yourself, how do I get NFTs after this introduction, the next two sections are for you!
How to create NFTs?
The first option is to transform something of value into a new unique nonfungible token. Many platforms have generators that streamline the process of creating NFTs. Some of the apps that let you make a ERC-721 token are MetaMask, Mintable, Receiptchain. The best shot for creating an NFT on another blockchain would be through an official dApp or wallet.
Where to buy and sell NFTs?
The second option is to hunt for gems that other people have already created. As mentioned, NFTs can only be traded on special marketplaces, as they are not directly interchangeable. What are NFTs marketplaces? The most popular ones are OpenSea, Rarible, Super Rare, Axie and Nifty. Some projects have their dedicated marketplaces, such as CryptoPunks and NBA Topshot.
All in all, what are NFTs merits and prospects? Non-fungible tokens are already seen as a godsend in art and gaming circles. This invention solves a ton of problems that plague the art industry, and their applications are already extremely diverse. Anything, from digital identity to a work of art can be put on blockchain, which guarantees uniqueness and verifiability. This versatility of actual use cases is the reason NFTs are said to become the next big thing.
Did you know that NFTs are often featured in crypto news and Beginner’s Guides? You can read more of them in our blog. If you want to get the updates to it first, follow ChangeHero on social media: Twitter, Facebook, Reddit and Telegram.