Our 0xcert DEX Blog Series has just launched. In the first post, we are focusing on identities and determiners of assets.
Asset-Blockchain Direction Shift
The domain of cryptocurrencies or purely monetary coins is slowly but apparently lacking excitement other than the traditional trading aspect.
Increasingly stronger focus and usability potential are now targeted at functional non-fungible assets representing unique real-life assets, from your driver’s license to a Ming Dynasty vase.
The blockchain craze started off with the aim of using cryptocurrency to pay for our assets, but recently, we’re seeing a shift of movement in a reverse direction, now targeted at putting real-life assets on the blockchain.
Identities and Tags
Understanding the basic structure of non-fungible tokens starts with understanding the basic terminology.
Tags
A tag is a descriptive word or data applied to a specific person or thing, as a label or means of identification.
In case of digital assets, tags go hand in hand with non-fungible tokens, as their nature requires a specific determiner for it to be distinguished from other assets, even those from the same family.
CryptoKitties, the pioneering example of a great NFT use case, provide a great insight into the concept of tags — each and every single kitty has its own set of tags defining the kitty and its identity.
Identity and identification number
Real-life assets are seen either as common or unique. For both, complete sets of factors determine their identity for improved tracking of their production, storage, and management.
An identifying code or an ID number can be attributed to:
- Serial products made continuously or in batches (ex.: processed food): they are identified and distinguishable by a unique serial number applied during production or sales, or
- One-of-a-kind unrepeatable creations (ex.: artworks): they are defined by a set of descriptive metadata.
Each asset is carrying a specific sequence of identification characters, issued by its producer, manager, or seller. The same way such a code holds information about tangible assets in libraries, inventories, or POS billing systems, a digital asset’s identification code or ID is a value carrier within blockchain systems, as well.
For NFTs, an identification code or ID is unique within the project minting it, where it cannot be duplicated nor divided. For example, a particular CryptoKitty could have the same ID code as another NFT from another source, but within its own CryptoKitties family, its ID is unique.
IDs are incorporated in the structure of an NFT, and determined either manually by the issuer or automatically by the issuer’s minting algorithm. They can be assigned entirely arbitrarily, not depending on the minting sequence.
An NFT ID is conceptually different from the notion of the value of fungible tokens, such as cryptocurrencies or digital coins. Those are not identifiable as unique, therefore they are determined by value, which is set mostly by its utility and consequently market demand.
IDs in NFTs Value in FTs Related to non-fungible tokens Related mostly to fungible / utility tokens Determining identity Determining price Set by token’s issuer / manager / seller Determined by utility / market / speculations Fixed Volatile Qualitative (containing descriptive data) Quantitative (holding monetary worth)
Non-fungibility on blockchains
Ethereum ERC-721 standard for non-fungible tokens is the only official NFT standard to this day. It appeared only a few months after the inception of Cryptokitties and got officially confirmed in June 2018.
It is aligned with much of the code powering CryptoKitties, including the identification tags, but contains several additional features that make the ERC-721 a standardized set of functions for creating NFTs on the Ethereum blockchain.
Yet, non-fungibility is far from limited or exclusive to Ethereum. As in the case of Coin Colors or Rare Pepes that surged on the Bitcoin Blockchain, integration of custom metadata or tagging of assets is possible on other blockchains, as well.
The real-life applications will lead the way towards frameworks optimized for the most efficient and reliable tokenization methods on several blockchain systems for all sorts of assets.
This article was originally published on 0xcert website and is replicated here with express permission from 0xcert.
