This post is a detailed review of Non-Fungible Tokens (NFTs).
NFTs are another innovative product of the blockchain technology.
So far, they have gained massive adoption in the gaming industry and the art field.
NFTs became popular as Crypokitties (an Ethereum blockchain game) went viral in 2017.
As you read on, you will learn what NFTs are, their uses, and more.
If you are ready, let’s get started!
Post Summary
- What Are Non-Fungible Tokens?
- Features Of Non-Fungible Tokens
- How Non-Fungible Tokens Work
- Uses Of Non-Fungible Tokens?
- List Of Projects That Use Non-Fungible Tokens
- Pros & Cons Of NFTs
- What Does The Future Hold For NFTs?
- Conclusion
Enjoy your read!
1. What Are Non-Fungible Tokens?
Non-fungible tokens are special kinds of tokens that represent unique assets and they are not interchangeable.
This means that NFTs have distinctive characteristics, which make it impossible for them to be exchanged or replaced.
To better understand this concept, let’s see what fungibility means:
Fungibility is the character of an asset that makes it possible for its individual units to be interchanged.
A typical example is the fiat currency. You can replace a ₦100 note with another ₦100 note or with two ₦50 notes or five ₦20 notes.
It is the same for blockchain tokens like Bitcoin, Ethereum, Litecoin, etc. Two 0.50 BTC can replace 1 BTC, and so on.
Non-fungible tokens operate differently.
For example, you cannot borrow your friend’s car for an errand and then return another person’s car for her or maybe return the different parts of the car separated from each other.
She will not accept it. This is because your friend’s car is non-fungible
Non-fungible tokens are just like that. They cannot be exchanged for each other.
And such a token cannot be divided into fractional units that will replace the whole token.
Furthermore, NFTs can be used to represent digital or tangible assets. They serve as proofs of authenticity and ownership within a blockchain network.
Examples are collectibles, digital art, game items, domain names, event tickets, etc.
In the next section, you will find the features of non-fungible tokens.
Keep reading!
2. Features Of Non-Fungible Tokens
Interoperability – this feature of NFTs enables them to move from one ecosystem to another.
When a new NFT project is launched, it can be viewed on different wallet providers, traded on marketplaces, and displayed in virtual worlds.
Tradeability – NFTs can be traded on open market places like eBay using any fiat currency.
High Liquidity – NFTs attract a wide pool of buyers and this results in high liquidity.
Immutability/Scarcity – NFTs cannot be interchanged. Their uniqueness leads to scarcity which in turn yields an increase in value.
One field that maximizes this feature is the Art field, where value largely relies on the scarcity of the original piece.
Progammability – Different mechanics can be used to program NFTs including smart contracts, forging, crafting, etc.
Moving on, we’ll see how non-fungible tokens work.
Tag along!
3. How Non-Fungible Tokens Work
As mentioned, NFTs can represent digital or tangible assets.
In order to achieve that, smart contracts are used. These smart contracts contain relevant information on the asset which the token will represent.
There are different standards that determine how these smart contracts are deployed. Top on the list are ERC-721 and ERC-1155.
They are both standards of the Ethereum blockchain just like the ERC-20 standard.
ERC-721 standard was developed for the creation of non-fungible tokens while ERC-1155 supports both NFTs and fungible tokens.
After successfully tokenizing their assets using any of these standards, owners can then move their tokens to any platform of their choice depending on what they want to do.
If they want to sell it, they move it to RareBits. For someone that wants to keep his token for later, he can store it in a crypto wallet.
Here’s an example of how NFTs work:
Chidera owns an artwork but it is not attracting high-paying clients.
His friend advises him to tokenize the asset and he agrees.
Next, Chidera hires a developer who writes a smart contract for him and deploys it.
Once it is deployed, Chidera now has a token that represents his artwork.
Because this artwork is an original work of Chidera, it is unique and scarce.
Therefore, he can put it up for auction and sell it to the highest bidder.
Apart from the Ethereum blockchain, NFTs are also supported by TRON, EOS, NEO, and Dapper Labs’ Flow blockchains.
Still here? Good! Read on to see the uses of NFTs.
4. Uses Of Non-Fungible Tokens
NFTs are very unique. Hence, different platforms use them to tokenize assets (virtual and non-virtual) and retain ownership.
Common uses of NFTs include:
i. DApps (Decentralized applications) use non-fungible tokens to create and own unique digital assets and collectibles like sports cards, game characters, etc.
ii. NFTs are traded in open marketplaces (e.g. RareBits) that connect buyers with sellers.
iii. Some companies use NFTs to grant ownership of items such as video games, digital identity, licensing, certificates, etc.
iv. NFTs are used to create scarcity in the art field. This scarcity in turn increases value (just like we saw in Chidera’s example above).
v. They can increase the liquidity of an asset. For example, a virtual land (a designated portion in cyberspace) owner can choose to rent it while still retaining ownership.
In the next section, you will find a list of projects that use NFTs.
Check it out!
5. List Of Projects That Use Non-Fungible Tokens
Popular NFTs projects include:
- Cryptokitties
- RareBits
- Decentraland
- OVR (OVRland)
- Gamedex
- Age of Chains
- Rare Pepes
- SuperRare
- TerraVirtua
- Rarible
- Rootstock (RSK)
- Watafan
- CryptoPunks
- Cryptokicks (by Nike), etc.
Next, I discussed the pros and cons of NFTs.
Tag along!
6. Pros & Cons Of NFTs
Pros
- Provide new streams of income in different fields of interest.
- Create an opportunity for more individuals to adopt crypto.
- Makes it possible to own a real-world asset even across borders.
Cons
- Not easy to build a DApp for NFTs
- Creating an NFT is time-consuming
- Difficult to comprehend by newbies
- Market can collapse thereby resulting in a loss
Wondering what the future holds for NFTs? Join me in the next section to find out!
7. What Does The Future Hold For NFTs?
Following the trend of NFTs and their versatility, it is expected that more companies will adopt the technology.
The gaming industry is already taking the lead. And we should expect more.
Don’t be surprised when you see the non-blockchain brands partner with blockchain experts to launch new NFT projects.
Plus, blockchain developers are not taking any break. So, we expect to see improvements in the infrastructure that upholds NFTs.
A major improvement will be on creating a friendly user-interface that will make NFTs attractive to individuals who are not tech-savvy.
The advancements in NFTs notwithstanding, not all projects will be able to maintain their momentum months after their launch.
There is tendency that some NFTs projects may crash in the long run.
8. Conclusion
Non-fungible tokens help you reserve the ownership of your asset and make all the profit you want.
This is where our discussion on NFTs ends. Now, I’d love to hear from you:
What is your take on non-fungible tokens? Do you think they are worth investing in?
Will you take the bold step to tokenize your assets?
Let me hear your thoughts in the comments section right now.
Also, share this post with your crypto friends, thank you!
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Like NFTs are so hot now! Good one Chinma!
Awesome write up. I enjoyed reading it.