Non-Fungible Tokens (NFTs) are crypto tokens that can be assigned individual values. They are designed to represent unique digital assets, such as property or shares of stocks. As they cannot be interchanged with other tokens, it is believed that NFTs will play a significant role in the future of the cryptocurrency market. In this article, we’ll explore how and why NFTs work and the implications their rise could have within both cryptocurrencies investing and on society as a whole.
Basic Concepts
Let’s begin with some of the basics: what is a token? Well, it’s simply an asset that is represented by a digital token (or “coin”). This can be useful for transferring or sharing value – for example, you can transfer $10 to someone online by simply transferring them 10 tokens. Tokens and coins are further broken down into fungible and non-fungible assets, like jungle nft. We will discuss this marketplace where you can buy, sell and auction digital collectibles.
It is important to differentiate that fungible asset that can be interchanged with others of the same type; all tokens or coins of a certain currency, such as U.S. Dollars, are interchangeable. Conversely, non-fungible assets are unique in some way and not interchangeable. For instance, while all U.S. Dollars have the same basic properties, each one has unique serial numbers distinguishing it from other versions of the same currency. Some fungible tokens work this way as well; for example, every token representing a unique cryptocurrency has the same owner and basic properties.
The unique nature of these NFTs makes them perfect for representing all sorts of digital assets, such as currencies or property deeds. It’s easy to imagine a world in which money is sent over the internet by simply transferring tokens that represent currency; everything from art pieces to trading cards could be transferred in the same way.
What are the benefits?
Due to the unique nature of every NFT, they have many benefits over traditional assets that can be transferred digitally. For example, if you wanted to purchase one bitcoin from someone else using PayPal then both people would need an active account with PayPal and some form of government-backed currency (dollars, euros, etc.). If you wanted to transfer a digital one-of-a-kind piece of art then both people would need an active account with the marketplaces where that particular work of art is available for sale.
NFTs can be used almost universally because they only require wallets capable of transferring NFTs to be used. Anyone who has access to the internet can store and transfer NFTs with relative ease, so long as they have a compatible wallet. This is why NFTs are predicted by many to become a major force in the market over the next few years.
It is also worth noting that some countries have outlawed or restricted certain types of assets from being transferred online, or have placed limits on how much an individual can transfer. NFTs, by their unique nature, bypass these restrictions completely as they cannot be interchanged with other tokens.
Who are the major players?
The rise of NFTs is a very recent development in the cryptocurrency market and has already created a handful of new billionaires, such as the co-founders of Unity Technologies and Tencent. However, some companies have been instrumental in developing the NFT market as well as those who stand to gain from its rise.
For example, CryptoKitties is a decentralized application built on top of Ethereum’s blockchain platform. CryptoKitties’ platform allows users to buy, sell and breed unique digital cats that are represented by NFTs. The CryptoKitties development team created the ERC-721 smart contract standard, which is widely used in most NFT tokens.
The same ERC-721 standard has been adopted by several high-profile projects, including Gods Unchained and MLB Champions. Several crypto exchanges have begun to list these types of assets, such as BitCandy and OpenSea. The benefits provided by NFTs make them prime for widespread adoption soon, so investors would be wise to keep an eye on this ever-growing sector of the market.
Why use NFTs for your game or app?
NFTs can be used to represent all sorts of items and objects in blockchain-based games and apps. Traditional fungible tokens are interchangeable, so they cannot be used to represent unique digital assets or objects. For example, if you wanted to use a token to represent a land deed in your Dapp then you would need every copy of that token to be identical.
This would create massive problems for the game developer since every player who obtained that land deed on their own would have an incredibly powerful item or asset in-game. By using NFTs instead developers can use one non-fungible item/asset on all players’ accounts without worrying about unfair advantages.
What are some future applications?
While NFTs have only just begun to revolutionize the market, developers are constantly attempting to create new uses for these unique tokens. Many projects are looking into using NFTs to verify real-world digital assets, such as art pieces or passports. While this may seem like an impossibility at first, NFTs are already being used to verify digital identities on the blockchain, which is a major step towards establishing trust between an asset’s owner and its buyer.
The increased level of transparency created by using NFTs will allow for governments to investigate more accurate tax returns, as well as provide vital information about stolen or lost assets. There are also many projects and companies looking to move physical objects onto the blockchain, which will revolutionize the global supply chain industry.
Challenges and limitations of using NFTs in the real world
NFTs have already begun to revolutionize the market and, likely, their full potential has yet to be realized. However, this does not mean they are perfect and there are several limitations and challenges associated with using these tokens in blockchain-based games or apps.
For example, since each NFT represents a unique asset on the blockchain, there is a large amount of data that must be stored per token. This can cause issues in large games where storage becomes an issue and even in smaller and less demanding apps, the vast amounts of data associated with each object could become problematic.
Another major challenge is that these tokens cannot be traded on exchange protocols such as 0x or Kyber Network. This means that it is up to the game developer or application creator to find a suitable solution and most cryptocurrencies cannot be traded on exchanges at all.
NFTs can completely revolutionize the market and continue to grow as more and more uses are discovered and expanded upon. While there are some limitations, these issues have yet to fully impede any of the projects currently using NFTs and it is likely more solutions will be found as the market matures.