NFTs (non-fungible tokens)

Non-fungible tokens (NFTs) are tokens that are bound to unique digital items. Such as a festival ticket, a domain name, or your avatar in a game.

Fungible & non-fungible

All of these personal items can be categorized as non-fungible. This means they can’t be divided into smaller pieces; you can’t send someone part of a festival ticket. Cryptocurrencies, on the other hand, are fungible; one Bitcoin can be replaced by every other Bitcoin and they all have the same value.

How are non-fungible tokens used?

NFT tokens could be used for domain names, certificates, medical reports, festival tickets & much more! The tokens belong to a certain dapp (decentralized app). Two popular dapps are CryptoKitties and Rarible, both with different NFT functionalities. CryptoKitties is a game in which you can raise and trade digital cats. Each CryptoKitty is a non-fungible token. Rarible is a platform for digital art that allows collectors to trade art, and artists to sell their work; the artworks are NFT tokens.

Why are non-fungible tokens useful?

NFT tokens are very useful because for the first time people can genuinely own digital items they’ve earned or bought. You are in full control of your NFT tokens! Artists often find it hard to prove the authenticity of their work (especially with digital art); NFT tokens could fix this. It is possible to trace the first creator and the date of publishing when important details of the artists and artworks are recorded on a blockchain. And buyers are made sure that the artworks they buy are actually unique. Furthermore, gamers could bring their in-game NFTs, such as their avatar or their wearables, with them to a completely different game. And proven scarcity, thanks to NFTs, makes in-game items even more desirable.

How do non-fungible tokens work?

Just like normal tokens, NFT tokens are issued by a smart contract on the blockchain. Different smart contracts use different standards. Standards allow developers to build software that’s compatible with other software. NFT tokens are based on a different standard than normal tokens (fungible).

Ethereum’s standard ERC-721 is the 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 a block, which enables the blockchain to recognize the non-fungible tokens. Ethereum is the most popular blockchain for NFTs, but there are other blockchains supporting these tokens, like NEO, WAX, and TRON.