What the Hell Are Non-Fungible Tokens and Why Should I Care?
While bitcoin and other cryptocurrencies are trying to find their legs and true accepted value, the markets reflecting their supply and demand are extremely volatile. This can be great for day traders and can create interest, excitement and well…dreams of future Lambos. But it’s not always what long-term investors want, especially those who are newer to the space and still learning about the technology. Thankfully, we’re quickly evolving beyond the simple “fungible digital currency” use cases and discovering many other applications for blockchain technology.
If you’re not familiar, fungible currency or fungible tokens are interchangeable with other coins/tokens of the same type. They are uniform, meaning the tokens are all the same and they are divisible. A bitcoin investor doesn’t care which bitcoin they hold, just how many. Outside the blockchain world, a few examples of fungible assets include oil, bonds, gold and other precious metals. One kilogram of pure gold is equivalent to any other kilogram of pure gold. Again, it doesn’t matter which kilogram you have, just how many kilograms you have.
Unique in Their Existence
But what happens when you want to digitize a valued asset that is unique in its physical existence? Well, that’s where non-fungible tokens (NFTs) come into play. NFTs are, in my opinion, where things get interesting.
Non-fungible tokens are very different because they are irreplaceable and unique. If you’re buying an NFT, you expect the exact token, not a similar one. Things like a deed to a house or personal identity are not something you can swap for a “similar token” and expect to have the same data, information, or content.
Even if you have two tokens that are relatively the “same,” as an NFT they exist independently and can be tracked and utilized as unique assets. Think of this like two identical baseball cards of the same player. Each card shows the same photo on the front and same stats on the back, but the cards are numbered and their conditions may vary. One may have been the first card printed of that given run, the other card may have been the last. One may have damaged edges and the other may be pristine. While these are the “same” baseball card, they are unique in their existence.
If you’re still confused, more on the difference between fungible and non-fungible assets can be found here.
Digitize ALL the Assets!
Having digital representations of real-world assets that can be instantly bought or sold to anyone, anywhere, certainly sounds like we live in the future. Having this technology creates liquidity in relatively illiquid markets. Real estate, art, collectible game assets, personal identity (yes, this is an asset, especially when you consider the value of your personal data) are all assets that can have NFTs representing them in cyberspace.
Non-fungible digital assets have many use cases, but the one I’m personally excited about (and involved in) is the gaming and collectibles industry. Just like bitcoin, an NFT’s value is based on demand, scarcity, use-case and speculation. The difference is, I can own one bitcoin but even as bitcoin’s value fluctuates, it’s still just the value of one bitcoin. My bitcoin is neither special, nor unique, it’s the same as yours.
NFTs give me the ability to invest not only in a type of token or project that I like, but specific assets within that market. I can speculate on the community’s demand for certain assets within that project. If I think a certain breed of CyptoKitty is going to be the most sought-after, I can invest in buying up a bunch of that specific breed. If the project is a card game like Volition and I think that one of the decks uses better (and ultimately more valuable) cards, I can invest in those.
These types of investments are a great hedge against extremely-volatile fungible investments. Digital collectibles are an investment space that’s very new and it’s hard to tell what will actually be desired by collectors in the long term. Keeping your investment options open to the possibility of NFTs will give you some awesome assets that you can show off and even use, unlike the bitcoin you have sitting in your wallet. Digital cash is great, but it’s not exactly fun.
NFTs are a huge opportunity for gaming and collectible projects who want to offer true digital ownership and true scarcity. The ability to have unique gaming objects exist and be individually tracked, updated, tagged, evolved, traded, invested in, hoarded, sold or even willfully destroyed, all in a digital space, is very exciting and well… game-changing. Every game asset a player owns is theirs, just as if it was physically in their pocket or collection binder. If the protocol allowed it, they could sign the card, scribble a picture, even rip it up and it would be the only asset in the world that exists like that, and it can’t just be copied with ctrl-c, ctrl-v.
How is that not exciting?!
