What exactly is a Non-Fungible Token or NFT?
A non-fungible token (NFT) is a unique, individual token existing on a blockchain such as Ethereum. Unlike cryptocurrencies like bitcoin, each NFT token contains unique data meaning non-fungible tokens are not interchangeable with each other. This non-fungible nature of the tokens means their use cases differ greatly from their fungible counterparts.
A normal token can be exchanged for the same type of token equally without any difference. A good example is a dollar — if you and I both have a dollar — we can swap dollars and it doesn’t matter, neither of us lose out they are equal. Whereas, with non-fungible tokens they are both unique, meaning if we both have an NFT, mine could be a CryptoKitty, and yours could be your Marriage Certificate — obviously we cannot exchange these two equally. Therefore making our tokens non-fungible.
Non-fungible tokens are used to create verifiable digital scarcity. NFTs are used in several specific applications that require unique digital items. This has initially proven popular for blockchain games and collectibles like CryptoKitties on the Ethereum blockchain. NFTs can also be used to represent in-game assets, which are in control of the user instead of the game developer. One exciting benefit of this arrangement means the non-fungible tokens or digital items, may actually outlive the game they were initially created for and find incorporate into separate future games. Yet another potential use is in digital art, by helping prove authenticity and ownership.
Is an NFT the same as an ERC-721?
The Ethereum community has adopted the ERC-721 protocol as a standard for Non-Fungible Tokens on Ethereum. Projects like CryptoKitties, CryptoCuties, and Decentraland follow the ERC-721 protocol for their NFTs. Mintable.app has also exclusively adopted the ERC-721 standard for our digital item creation service. There are other blockchains and other formats that also contain non-fungible properties, however, the most viral use cases are all on Ethereum and the ERC-721 standard.
Non-fungible tokens first made their way into the mainstream when CryptoKitties went viral in December of 2017. The project went on to raise a $12.5 million investment.
Are NFT’s use cases limited to Ethereum gaming and collectibles?
We are still at the earliest stages for the NFT standard as the future of non-fungible applications is much wider than just gaming and collectibles. Mintable’s Zach Burks has been published with the IEEE on the topic of extending ERC-721’s applications to supply chains and traceability. Meanwhile, micro-satellite companies are exploring the use of NFTs for space and property developers are testing NFTs value added for real estate.
Imagine a world where every retail store sells items — not via bar codes but via tokenized assets. Meaning —every item of value has an NFT representing it; if you have a Prada purse and I say “Wow is that really a Prada?” your response would be to show the NFT representing your Prada and verify that it is the wallet address of the purse. Or when checking out and purchasing an item from the store— the cashier scans items via the address of the NFT and not by their barcode.
This is only one example and could be expanded on so much further — that is why it is so hard to grasp the future impactfulness of NFTs to our world. The possibilities are really only limited by the programmers ability to think of creative ways to use NFTs.
The changes to the way we interact with businesses could be vastly revolutionized if NFTs reached global adoption. This is, once again, why many people say NFTs will bring the next wave of adoption to blockchain. They just have so many use cases and impacts — how could they not be mass adopted?