Non-fungible tokens, or shortly said NFTs: What are these tokens we mention so often, and which are now having their own section on Coinranking?
For those who are not completely familiar with it, read further and step into the magical world of non-fungible tokens! ✨
A non-fungible token is a completely unique digital asset stored on the blockchain. Think of these unique items as things you own; the phone you’re now reading this on, or the laptop, the table you’re sitting on, etc. NFTs are things you own, but digital. All of these personal items can be categorized as non-fungible things, which means it can’t be divided into smaller pieces. In the same way, as you can’t send someone part of a festival ticket. A part of a festival ticket wouldn’t be redeemable and wouldn’t worth anything on its own.
Non-fungible = not interchangeable
When something is fungible, let’s say one bitcoin, you can replace it with every other bitcoin because they all have the same value; you can send someone one bitcoin and they can send one back, it would still be one Bitcoin. An NFT has its own identifiers and is one of a kind; it can’t be directly replaced by another NFT.
NFTs are used for digital items that need to be differentiated from each other, in order to prove their scarcity and value. Collectibles have become one of the most commonly used words to describe NFTs, however, there’re a lot more use cases for it. In the coming decade, millions of NFTs will be created on blockchains across different industries.
NFTs are used for digital items that need to be differentiated from each other.
There are three main uses of NFTs, starting with virtual items (game items). A second one is utility; think of the festival tickets. Even though a number of tickets are available for the same event, the rights they represent are not convertible. And another important one is ownership of (physical) property, such as art.
Next to these three main uses, NFTs could also be used for identity authentication. Think of birth certificates, passports, or driving licenses. These NFTs aren’t tradable, but identity verification can be realized by adding access control. And then we have digital certification, another interesting use case; NFT provides a way to store contracts, patents, and other documents to the blockchain, which could help prevent counterfeiting and make these traceable.
Shortly explained how NFTs works
Standards guarantee that assets will behave in a certain way and describe exactly how to interact with the basic functionality of the assets. The standard enables the creation of an NFT and helps developers with the process of setting up the smart contract that powers it. Standards are critical when it comes to trade NFTs. Ethereum’s ERC-721 was the first standard for NFTs and is by far the most popular (but not the only one).
Tip! Want to learn more about NFTs? Check out the NFT Bible, written by OpenSea (an NFT market place); it explains perfectly and extensively what NFTs are, how it works, its history, etc.