THE DAILY ENCRYPT

October 3, 2022

NFT (non-fungible token)

Non-fungible tokens are cryptographic assets stored on a Blockchain with unique identification code and metadata that differentiate them from one another. They cannot be traded or exchanged at the same time as cryptocurrencies. This is different from fungible tokens such as cryptocurrencies which can be used to facilitate commercial transactions.

Each NFT is unique and can be used for multiple purposes. They can be used to digitally store physical assets such as artwork and real property . NFTs are built on blockchains and can be used to connect artists with audiences, manage identity, or remove intermediaries. NFTs are able to remove intermediaries, simplify transactions and create new markets.

The current market for NFTs is heavily focused on collectibles such as rares and digital artwork. The most talked about space is NBA Top Shot. This allows you to collect digital cards that contain non-fungible tokenized NBA moments. These cards have been sold for millions of dollars. 3 Jack Dorsey, Twitter’s TWTR, tweeted a link that led to a tokenized version the first tweet. He wrote: “Just setting up my twtr.” The NFT version sold for more $2.9 million.

Cryptocurrencies are fungible and can be traded or exchanged one for the other, just like physical money. One Bitcoin has the same value as another. A single unit of ether can be equal to another. This makes cryptocurrency a suitable medium for digital transactions. 5

NFTs change the crypto paradigm by making every token unique and irreplaceable. This makes it impossible to have any non-fungible token be identical. Because each token has a unique identity that is non-transferable, they can be compared to digital passports. They can also be combined with other NFTs to create a third unique NFT.

NFTs, just like Bitcoin, also include ownership details that allow for easy identification and transfer among token holders. NFTs allow owners to add metadata and attributes that relate to their asset. Fair trade tokens, for example, can be classified as tokens representing coffee beans. Artists can also sign digital artwork with their signature in the metadata.

ERC-721 was the basis for NFTs. ERC-721 was developed by the same people who created the ERC-20 Smart Contract. It defines the minimal interface–ownership details and security–required to exchange and distribute gaming tokens. 6

Cryptokitties is perhaps the most well-known use case for NFTs. Cryptokitties were launched in November 2017 and are digital representations or cats with unique identifications on Ethereum’s blockchain. Each cat is unique and each one has its own price in ether. They breed among themselves and produce offspring with different values and attributes than their parents.

In just a few weeks, cryptokitties had racked up a following that spent $20,000,000 to buy, feed, and care for them. Within a few weeks of their launch, cryptokitties had racked up a fan base that spent $20 million to purchase, feed, and nurture them. 7

While the use cases of Bored Ape Yacht Club and cryptokitties may seem trivial, there are more serious business implications. NFTs can be used to make private equity deals as well as real-estate transactions. 10 Another consequence of enabling multiple types of tokens in a contract, is the ability to provide Escrow for various types of NFTs (from artwork to real-estate) into a single financial transaction.

Key Points

  • NFTs are cryptographic tokens that can only be reproduced and exist on a blockchain.
  • NFTs may represent real-world objects such as artwork or real estate.
  • These real-world tangible assets can be “tokenized” to make buying, selling and trading more efficient, as well as reduce the risk of fraud.
  • NFTs may also be used to represent an individual’s identity, property rights and other information.

 

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