What are Non-Fungible Tokens?

Cryptomode Non-Fungible Tokens NFTs NFT

The cryptocurrency and blockchain industry has seen many trends come and go. Non-Fungible Tokens, or NFTs, are one of those trends that may stick around. It is gaining a lot of traction among artists and designers. 

What are Non-Fungible Tokens Exactly?

For those unfamiliar with this concept  a brief explanation is in order. NFTs are a type of cryptographic token that represents a unique asset. That also means that the asset in question has to be completely unique. Non-fungible means that there is no fungibility, thus there can’t be more than one of a particular NFT. 

As these NFTs are not interchangeable, there is a certain “collector’s value” to them from day one. Scarcity is the main appeal of cryptocurrencies, and that same trait extends to non-fungible tokens as well. 

Although several “iterations” of non-fungible tokens may exist, these are never entirely the same. Depending on the project or creator issuing these tokens, some of them may show core similarities, but other aspects will be completely different. Different colors, different names, or slight tweaks to the design are just some of the potential differences to look out for. 

One core aspect is how every NFT has to be a representation of either digital or real-world assets. In the art space, both physical paintings and paint drawings can be tokenized on a blockchain to create NFTs. This allows for unprecedented market growth, and it gives artists from all over the world a chance to showcase their skills and make some money.

What is Their Purpose?

In their first iteration, most NFTs were part of distributed applications, or dApps. This is what gave birth to the first collectible crypto tokens, although many other potential use cases have come ever since. The main benefit of using dApps is how those can be used to claim ownership of unique collectibles. 

For other users, they are a way to potentially invest in collectibles through cryptocurrencies, and increase their holdings accordingly. Not all NFTs will appreciate in value, regardless of their scarcity. Nor are they all designed to gain value, although NFTs can always be traded in open marketplaces. 

Technical Aspects of NFTs

Creating a non-fungible token would not be possible without the correct technical standards. The most commonly used standard is ERC-721, as it simply was the first to be created. Leveraging this token standard allows for issuing and trading non-fungible assets on the Ethereum blockchain.

Later on, the standard was slightly revised and improved upon, following community feedback. This resulted in the ERC-1155 standard, allowing smart contracts to interact with fungible and non-fungible tokens. Other blockchains will have their own unique standards, as NFTs can be found within several different ecosystems as of right now.

Will the Industry Succeed?

The initial NFT hype coincided with the launch of new dApps that have lost a bit of traction ever since. Thankfully, the industry has become about so much more than just “games” and whatnot. It is a very viable industry when the frameworks are used correctly. Moreover, there are still many potential applications to non-fungible tokens that have yet to be fully unlocked.

Its main use case currently comes in the form of crypto artwork. There are a lot of talented creators out there who are looking to tokenize either digital or physical art. It is just of the many segments to look into, however. New use cases are unlocked on a regular basis, and the outcome may often be rather surprising.  

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