Non-fungible tokens, or shortly said NFTs: what are these tokens that were suddenly so booming?
If you’re not completely familiar with it, read further and step into the magical world of non-fungible tokens! ✨
What is a non-fungible token?
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 reading this on, or your car. NFT tokens 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, that 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 token contains its own identifiers and is one of a kind; it can’t be directly replaced by another NFT token.
Each non-fungible token belongs to a certain decentralized application (dapp). Such an application runs on a blockchain in a public and decentralized environment. Decentralized means that something is not ruled by just one person or organization and that there is no interference from a third party. Instead, these dapps are usually controlled by a whole community.
Each dapp has its own purposes for the NFT tokens. Take Decentraland for example; a blockchain-based virtual world, in which users can socialize, go to online events, visit galleries, etc. All the unique items within this world are non-fungible tokens, such as the pieces of land (parcels), wearables, and even the names of the avatars. However, this is just one example of how an NFT token can be used.
Collectibles & digital art
NFT tokens are used for digital items that need to be differentiated from each other in order to prove their scarcity and value. They come in all shapes and sizes, however, crypto-collectibles have become one of the most commonly used. People have always loved to collect (rare) items, like football cards, stamps, underwear of famous singers, and so on. In a like manner, you have digital rare items. A step further than ‘meaningless’ items is digital art. Crypto makes full ownership of your digital work possible, which is huge for digital artists and collectors.
Non-fungible tokens also appear in games. Gods Unchained, for example, is a card game in which players use their card collection to go to battle. The more cards (= NFT tokens) you have, the more powerful you are. Another famous blockchain game is Axie Infinity; players fight each other with so-called Axies (= NFT tokens), and try to win even more Axies. These in-game NFT tokens are also collectibles.
And much more!
Every digital item that needs to be proven rare, proven to be someone’s property, or proven to be different, is suitable for being tokenized as a non-fungible token; festival tickets, passports, medical rapports, etc. NFT tokens provide 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 work
Non-fungible tokens are based on a different standard than cryptocurrencies (fungible tokens). Ethereum’s standard ERC-721 was the first standard and most common for NFT tokens, while cryptocurrencies (on Ethereum) are based on the ERC-20 standard. These standards are quite similar, except for the fact that ERC-721 tracks ownership and movements of individual tokens in the block, which enables the chain to recognize the non-fungible tokens.
Hé, what are you still doing here? Go explore the NFT tokens!
Edit: Since January 2022, Coinranking no longer provides data on non-fungible tokens. Read full announcement here: Back to simply crypto prices