What is Non Fungible Token?

NFT - the 3 letters that have manage to squeeze their way into the crypto limelight just before the year ends.

There always seems to be a new buzz word in crypto and this time it's NTFs or Non Fungible Token. So let's understand what they are.

What is a token?

A token is anything that can be traded or exchanged. It doesn't need to be actual money but there will be perceived value in it and so it can be traded.

In terms of Non Fungible Tokens, think of 'tokens', as collectibles. They can be anything from the physical world or the online world.

Tokens can be paintings, ornaments, clothing or they can be characters in an online game, or even the character's gadgets like sword or a gun. It can even be a website domain!

Essentially these collectibles are tokenized, meaning they are given a cryptographic identity and put on the blockchain. It also represent unique items and are not directly interchangeable with another token because each token will have its own value. This is what we mean by non fungible. Two items which on the surface seem the same, are in the fact not the same and therefore can be traded at different prices. If you collect action figures or sport cards, you may already have an idea of what this is like. Two sport cards may look the same, but the price will depend on what year it's from, the condition, and other unique factors. They are not directly interchangeable for one another. They are non-fungible.

An asset is only fungible if it's interchangeable with any other assets of the same type. The most common example of it is cash. The US dollar is fungible. This means every dollar has unique value and therefore directly interchangeable with another dollar.

A particular dollar's history or who it came from doesn't matter. A dollar is still a dollar. But with NFTs, no two paintings and no two characters in a video game are the same. They all have a different story and history. This is what gives each token its unique value and therefore determines the different prices. For example;

The value and so the price of the token can depend on:

• How are the collectible is.

• Is it 1 of 100 or is it 1 of 5?

• If it is 1 of 5, is it the original or the fifth copy? Is it one of kind?

All of these factors that give the NFT value need to be verified, and this is where blockchain technology comes in.

How blockchain contributes to NFT?

By tokenizing to items and putting it on the blockchain, it provides authenticity and trust, essentially weeding out potential counterfeits.

Also, since every transaction is recorded on the blockchain, you can see the entire history of the collectible like;

• Where it was made.

• Where it's been traded.

• And who has previously owned it.

All things which will impact the value of the token. But with anything in crypto there is some controversy surrounding it.

Let's go back to the online art example:

Just with any art, it can be traded. But when it's online, people can take a screenshot of the work and then have a saved copy of. Obviously this is only a copy, it's not an original nor is it even the NFT, it is simply a screenshot, a counterfeit perhaps! But given how developed our technology is, it will look practically the same as the original.

So, just as we say when it comes to beauty, the value here really is in the eye of the beholder.

Companies with NFT

With NFTs becoming more and more popular, there are companies that not only provide a market place to buy NFT, but also provide applications where you can store your collectibles in a virtual room. A bit like your Instagram and Facebook page being a virtual photo album.

Now given how fast technology is moving, it doesn't stop at art and collectibles.

Binance

Large crypto companies like Binance, are buying up huge amounts of virtual real state because there's an expected crypto real state boom!

The Sandbox

The Sandbox is a blockchain virtual game and they are tokenizing the land and selling it. So far they have raised 1.5 million dollars in land tokens.

Decentraland

Decentraland, a virtual world that's similar to the Sims or Second Life, also let's residents buy and sell virtual property. Land plots in Decentraland are represented by Non Fungible Token on Ethereum blockchain. If you hold the NFT representing land plot, you own the rights to that virtual real-state - meaning you can sell it to someone else, divide it up, build on it, rent it out - it's your property.

But tokenizing real state can go beyond the virtual world. There's been plenty of talk about putting house deeds on the blockchain as NFTs, to provide authentication and proof of ownership.

Can it scale?

This is the question on everyone's mind. Given NFTs live on Ethereum network, which has already shown signs of weakness when under huge scaling pressure, we are yet to see whether Ethereum 2.0 or other scaling solutions like Matic, will be able to facilitate a global network of online trading.

What are other use cases for NFT can you think of? I would be happy if you share some in the comments. ☺️

Lead Image source : NFT

Article by : @Ryryry143