Cryptonomics: Non-Fungible Tokens Explained

NFTs are witnessing growing speculation among NFT fans, leaving NFTS on track to be a massive industry in the future; collectible assets like CryptoKitties and CryptoPunks have proven the potential in the past.

By
Wilfred Victor
on
February 13, 2021
Category:
Cryptonomics

NFTs Explained

Since the beginning of the blockchain digital economy, there have been many shifts, trends, and use cases that have accompanied its development. The blockchain’s original utilitarian value was exclusively for financial matters, creating the first-ever cryptocurrency, the Bitcoin, and its issuing blockchain. However, this practical value gets expanded every day. NFTs are one such expansion of possible use case of blockchain technology that has found relevance in gaming, digital identity, licensing, certificates, and fine art. 


What are NFTs?

Non-fungible tokens (NFTs) are also known as crypto-collectibles. They can not be divided, maintain uniqueness, and characterize scarcity associated with cryptocurrencies, ultimately driving up their value. Also embedded in NFT’s attributes is the ability to represent a unique digital asset, which can be digital assets or tokenized versions of real-world assets. Initially launched on the Ethereum blockchain using the ERC-721 standard, the NFT industries have since expanded into other blockchains, with blockchain companies like WAX becoming the highest issuance of NFTs collectibles currently.

NFTs contain identifying information recorded in their smart contracts. They differ distinctly from regular cryptocurrencies in that each token is indivisible with properties that cant be shared with another tokens. Traditional cryptocurrencies like Bitcoin are divisible and are interchangeable, aka, fungible. For example, it is practically impossible to split one NFT collectible into new identities and owners, but entirely possible to do so with Bitcoin. One Bitcoin can change hands over time, and each Bitcoin is the same as the other; what may change with its movement might be the asset’s price.


How Do NFTs Work?

NFTs have their own specific set of attributes (e.g., off-chain and on-chain metadata), making them unique. This uniqueness means that only one type of NFT can ever be created and it can not be interchanged with an identical one. NFT’s highlight the uniqueness and scarcity of the broader use of blockchain. It has found its increased relevance in the areas of Artwork and Gaming. Since no two artworks are unique with fungible properties in mind, the same principles apply to certain gaming items.


There are various frameworks and issuance of NFTs, the most prominent standard is the ERC-721, which is the first standard created for the distribution of this asset class. A more improved standard is the ERC-1155, which has enabled a contract to store both fungible and non-fungible assets, improving the industry’s convenience and opportunities therein. 


WAX Blockchain

Since its creation, WAX blockchain has been focusing heavily on the design, issuance, and profitability of NFT and has been the most active in terms of NFTs transactions. It is displacing Ethereum that initially brought in the NFT craze of 2016, causing a gas war at the time. WAX blockchain improved on the ease of transacting with NFTs, with no traffic congestion nor increased costs to move NFTs. The ease of acquiring NFTs is high when compared to other issuing blockchain types. With a simple creation of an account, transacting in and on NFTs, is enabled automatically.


How Can NFTs be Used?

NFTs can be used by blockchain decentralized applications (Dapp) to issue unique digital assets, identification, and collectibles. Since NFTs trade on the blockchain, you have a lot of freedom regarding what you can use them for:

  • Buying and selling on a marketplace.
  • Trade or gift them out.
  • Use in decentralized apps, e.g., in-game activities.
  • Showcase your NFTs inventory in select platforms dapps or social media

NFTs help solves high inflation in gaming economies. Since most games have their economy and revenue generation strategies figured out, NFTs bring it a step further by allowing for the unique identification of a game and its features. Another exciting use of NFTs is the tokenization of real-world assets that can be stored and traded on a blockchain-enabled wallet and marketplace, respectively. Keeping digital identity is a use case that NFTs have helped improve tremendously using blockchain’s trustless property.


Examples of NFTs

  • Topps “Garbage Pail Kids” trading cards, an iconic cult classic since the 1980s, reimagined as NFT.
  • Blockchain Heroes trading card series are featuring the likeness of personalities in the blockchain.
  • Decentraland, NFT represented parcel of land in different district of the virtual blockchain. Landowners can build and monetize their plot, such as leasing it out to other players, using or advertising it.
  • Prospectors, a popular blockchain game where players can earn NFTs as rewards. Which can help improve their performance.
  • CyrptoKitties, the “OG” blockchain game that skyrocketed gas fees in 2016, causing NFTs to be famous to date.


CryptoKitties

You don’t discuss NFTs or Blockchain gaming without mentioning the “OG” of them all. The first Cryptokitties collectibles were minted in 2016, which were some of the first non-fungible tokens. Each blockchain-based collectible cat is unique from the other. If you send someone a Cryptokitties collectible, you’ll receive a different collectible that’s distinctly different in properties from the one sent.

Each cryptokitty can have a combination of different properties, including age, breed, and color, as each of them is unique and can not be interchanged with each other. To date, no gas fee era on the Ethereum blockchain has been as high as the days when Cryptokitties was popular.


Weakness of NFTs

Many argue that NFTs are not used for their original intended purpose. But more of a speculation asset these days, with high-interest from traders who seek to profit from the high return of NFTs collectibles. With the growing craze, scam rates are increasing as well. Fake arts and artists are becoming commonplace. The idea that art can never be copied is fueling nefarious activities as rug pull cases build up.


Closing Thoughts

NFTs are witnessing growing speculation among NFT fans, leaving NFTS on track to be a massive industry in the future; collectible assets like CryptoKitties and CryptoPunks have proven the potential in the past. However, it shouldn’t be used for its monetary value solely but for its actual use case, which is the basis of its creation. Understandably, traders want to profit, but that, as the sole purpose, won’t do well with the original intention behind NFTs. More blockchains have started issuing their own NFTs; right now, the top two blockchains are Ethereum and the WAX blockchain; the industry awaits other blockchains to begin their issuance. And who knows, we can have NFTs innovate activities like gaming and artwork in the traditional technology.


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Wilfred Victor

Ace finds himself as a blockchain enthusiast who is focused on growing with the entire crypto sector. He is an energetic and passionate writer who believes that all things are achievable.