NFTs, or non-fungible tokens, have tons of use cases: gaming, art, even yield farming. What exactly are they?
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What Is Fungibility?
For example, one $10 dollar bill is identical to another $10 dollar bill in terms of value. As such, when you borrow a $10 dollar bill from someone, you don't have to return the exact same note, since another of its kind has the same value.
In the cryptocurrency sector, one BTC has the same value as any other BTC. However, the game changes when we cross over to non-fungible tokens. An NFT crypto token has a distinct value from any other similar token. Individual characteristics dictate their uniqueness, hence, they are non-fungible, much like real-world assets like rare stones, works of art and collector luxury items.
What Are Fungible Tokens?
Fungible tokens are tokens that are tradable for each other, and their value remains constant. In the above example, Bitcoin is a fungible token because it has the same value regardless of its owner or history.
Characteristics of Non-Fungible Tokens
- Rare – The value of NFTs comes from their scarcity. Although NFT developers can create any amount of non-fungible tokens, they often limit the tokens to increase rarity.
- Indivisible – Although not set in stone, most non-fungible tokens are indivisible into smaller units. You either purchase the entire amount of, say, a digital art piece, or purchase no art at all.
- Unique – This is perhaps the most significant characteristic of them all. NFTs have a permanent information tab that records their uniqueness. Think of this information as a certificate of authenticity.
Advantages of NFTs
Non-fungible tokens bring a new dimension to digital interactions.
- They're transferable – Unlike exchange-traded fungible tokens, NFTs are bought or sold on special marketplaces. However, their value depends on their uniqueness.
- They're authentic – Blockchain technology powers non-fungible tokens. Therefore, you know that your NFT is genuine, since it’s nearly impossible to create counterfeits with a decentralized immutable ledger.
- They preserve ownership rights – Again, this refers to an NFT’s use of decentralized platforms where no owner can alter the data once committed.
Non-Fungible Token Use Cases
NFTs are popular in the gaming industry since these tokens solve some of its inherent problems. For example, top games such as Fortnite prohibit the sale of rare traits and accessories such as weapons and skins.
However, with NFTs, these features can easily be transferred and used in different games. As such, non-fungible tokens can help drive in-game economies.
NFTs are ideal for fighting identity theft. Examples of things that can be digitized to represent identity include academic qualifications, medical records and even our appearances.
Furthermore, digital artists can turn their work into NFTs for copyright purposes.
NFT’s use to prove identity includes converting physical game tickets into non-fungible tokens to weed out counterfeits.
NFTs bring a new dawn to the collectible world. Consequently, conventional collectors are now onto digital assets.
What Are ERC-721 tokens?
Two Things That Have Brought NFTs Into the limelight
Digital art artists have embraced non-fungible tokens to create NFT art. However, one thing that has made this NFT niche gain so much traction is the amount the artists are fetching on NFT marketplaces.
However, the entire collectibles’ market size is currently worth more than $130 billion. The increasing market value depicts a shift from viewing collectibles as a mere hobby to a large financial move.
What Are CryptoKitties?
What Are CryptoPunks?
The “Punk” in question, number 2890, is one of only nine existing “alien” collectibles made by Larva Labs and was last sold in July 2017 for only 8 ETH (around $1,500 at the time). A spokesperson for the investment consortium, which includes several prominent DeFi industry members, justified the cost, saying that a new market of younger collectors will increasingly be attracted to digital art that will continue to appreciate over time and mature into “iconic” digital works.
CoinMarketCap x The Sandbox: CMC Heroes
What Else Can Be Turned into an NFT?
Yield Farming in DeFi
Non-fungible tokens can represent a person's skill or time for monetization purposes. For example, a person can use an NFT for newsletters, podcasts and videos.
Problems with NFTs
Despite bringing sweeping changes to various industries, non-fungible tokens aren't without their shortcomings. Unfortunately, their problems come from the very same rock they sit on: blockchain.
Decentralized networks are not 100% user-friendly; a hurdle developers are working hard to overcome. For instance, verifying authenticity, selling, purchasing and storing an NFT needs at least a basic understanding of blockchain technology.
The problem sets in when the majority of the targeted individuals are only interested in the product, not the underlying technology, which is true for NFTs relative to other crypto subsectors.
In other words, we need blockchain to be as mainstream as a “smartphone” or the “internet.” Most people don’t know how those two work technically, yet billions use them every day. We need the same level of sophistication in blockchain for NFT’ to truly capture the world.
Top NFT Projects
Since the NFT subspace is growing exponentially, NFT-focused products and projects have also increased. They range from gaming networks to NTF marketplaces. Below are five of the top NFT projects today.
- OpenSea – This is the leading marketplace for NFT art and collectibles. Listed items range from ENS to virtual pets and plots of land. Notably, the marketplace allows purchases using several virtual currencies such as ETH and DAI.
- Async.Art - Async is another non-fungible token artwork marketplace that allows you to not only buy and sell your NFT but also to create one. That's not all. The platform has some programming features that enable art creators to easily define their artwork's appearance and behavior. In fact, it even allows buyers to buy sections or "layers" of a given artwork and customize them.
- CryptoKitties – Although we've discussed this project above, it still deserves to be on the list of top NFT projects considering it brought the whole NFT game to the limelight.
- Ethereum Name Service (ENS) – This is a domain name service project that came to life in mid-2017. The .ETH domain names are NFTs using Ethereum's ERC-721 standards and are tradable on NFT marketplaces.
- Decentraland – Decentraland is a top NFT project focusing on a distributed virtual world. Here, participants can buy virtual land. Furthermore, each “inhabitant” has a special identifying digital passport.
Where to Buy NFTs
It's possible to buy NFTs at NFT marketplaces. For example, OpenSea, Rarible and Nifty Gateways are some of the most well-known NFT marketplaces as of April 2021. Most NFT marketplaces work in an auction format with Ethereum as the underlying currency, so make sure that you have Ethereum in your crypto wallet and that you are ready to participate in an auction-style buying format.
Nifty Gateway is the NFT marketplace founded by twins Duncan and Griffin Cock Foster, later acquired by Gemini. On Nifty Gateway, interested users can purchase NFT artwork with tokens.
OpenSea is an NFT marketplace that includes digital art, collectibles and gaming items — all blockchain-based. You are also able to mint an NFT on OpenSea.
SuperRare is a more exclusive NFT platform, which also accepts Ethereum as a payment method. Artists that want to be on SuperRare need to submit a profile in order to be considered.
As for where to buy NFTs on Rarible, you can both purchase and issue NFTs on this marketplace, which allows anyone to be listed on its portal.
It is possible to buy NFTs on marketplaces besides the ones listed above — for example, the popular NBA Top Shot NFTs are available on their own site.
Are We Ready for an NFT Bull Run?
Not yet. The current NFT hype has signs of fading away very soon. since most of it sits on artificial prices. Furthermore, there are concerns that wash trading is at play. For instance, a virtual cat from CryptoKitties had a selling price of 600 ETH coins, even though it had no rare traits to justify the high cost.
But despite all that, even if you aren’t interested in NFTs right now, don't turn your nose up quite yet — the ecosystem is changing, and just like DeFi, NFTs may become the next big thing in crypto. Besides, there are phenomenal investment opportunities in NFTs right now.
However, the uptake of these tokens lies in whether the next generation of millennials will see their worth. Why? Because by the end of this decade, millennials will have a lot of idle income. And if they are previously predisposed to NFTs, they may consider investing in them. Furthermore, millennials are shifting from collecting physical goods like fine wine to virtual assets such as Bitcoin (BTC).
It’s important to note that the NFT space is still in its infancy. Therefore, expect to see new platforms edge out the current batch of top NFT projects in 2021.
In fact, its application scope is only limited to the imagination of the cryptocurrency community and developers.