What Are Non-Fungible Tokens And What Do They Do?
Initially, the term “cryptocurrency” could be understood literally as it meant any cryptographically protected digital currency — electronic money with the same functionality as fiat. But not all modern cryptocurrencies have the same set of properties as physical ones, and besides, there are digital assets called tokens that have a completely different purpose. We have already talked about the types and features of tokens used in ICO campaigns. Today we’ll discuss tokens that make up the modern gaming industry. These are non-fungible tokens (NFT), which are fundamentally different from cryptocurrencies by their nature.
One of fundamental properties of money is interchangeability. If you’re going to make a purchase worth $5, it doesn’t matter what denomination the bill you give to the seller will be — only the purchase amount matters. Likewise with bitcoins: they are all equal, so you don’t have to choose any particular coin to complete a transaction. But things are different when it comes to non-fungible tokens. The exchange of one NFT for another has a lot to do with barter. Such a property is dictated by their main function, which is the tokenization of things that cannot be divided into equal parts.
Using Non-Fungible tokens
Non-fungible tokens can be considered as the next stage in the development of digital assets, that was completely different initially. They were used as a unit of exchange or an internal currency of a project, as a tool for tokenization of company shares, they gave the right to vote or other privileges to holders. Tokens within one project are the same in essence and price, so it’s enough to keep their quantity, price, and transactions information in blockchain. All ERC-20 tokens are interchangeable within their blockchain platform.
Each NFT is one-of-a-kind and can vary in price from $15 to $172,000. This is a real example: an average price of one CryptoKitties token and the highest amount paid for a digital pet, respectively. Each of NFTs has a certain set of properties, which makes it unique, therefore they are widely used in gaming to tokenize game characters, objects, and their various combinations. Information about all token characteristics is recorded and stored in blockchain.
Evolution of non-fungible tokens
The time of non-fungible tokens has come with the advent of the Ethereum ERC-721 standard that boosted the development of blockchain-based games. The collectible game CryptoKitties became the first big and famous project using NFTs. After its launch and deafening success, dozens of similar games were created.
The next step was the development of the new standard ERC-1155, which combines ERC-721 and ERC-20 in some way. This standard allows to exchange different game elements (characters, collection items, skills, etc.) with several players by using a single transaction. This saves time, reduces the load on the platform, and decreases transaction fees.
However, gaming is not the only area of use of non-fungible tokens, albeit the most popular one. The fact that NFTs allow tokenizing anything in the real world is way more intriguing. These are art objects, antiques, jewels, or other unique things, such as real estate objects, rare cars, land plots, and intangible values that can also be represented as digital assets. Non-fungible tokens show how blockchain enters our daily life, and over time the connection between the real and digital worlds will only increase.
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