To Fungibility or Not to Fungibility?
To get into Non-Fungible Tokens (NFTs) and associate them with spacecraft identity in the context to solve issues like crowded orbits, lunar mining and more ecosystems, we need to first understand the standard behind NFT. In blockchain there are multiple standards originally developed by the Ethereum community and translated and/or copied by other projects. In this post, I’ll discuss some of the standards I’ll be needing to go further. But, even before we do that, I need to discuss fungibility. A fundamental concept in an introduction to economics.
An Economic Side Step
What is Fungibility?
The notion of fungibility is fundamental to our verse as adopted by Quantum Physicists. In the quantum multiverse, the myriad particles divide, combine chaotically due to their interactions from a common fungible entity in superposition [1]. The notion of fungibility in economics is that a good or an asset is considered fungible if that good’s or asset’s individual units are exchangeable and each of the parts that make it up, are the same, of equal value and indistinguishable from each other [2]. The most straightforward example is any kind of commodity like gold, common shares, commodities like milk, cash (all valued in N.Z. dollars). Every $1 of cash is easily convertible into two 50 cent pieces, ten 10 cent pieces, etc.
What is Non-Fungibility?
This is essentially the opposite of fungibility where a good or an asset is considered unique and generally irreplaceable. It’s constituent parts that make it up are not necessarily equal and is normally not considered or valued. Common examples include pieces of art, collectibles like comics, action figures, vintage cars or a person’s identity? Anything that is unique to the world with the potential of being valuable. It’s important to emphasis the potential of being valuable because not all non-fungible assets are valuable at the moment in time they are acquired but only a few are absolutely valuable at the moment in time they are acquired.
It is also true that the value of a non-fungible asset could increase over time or even decrease over time depending on the story behind that asset and the journey it has been through to the moment of acquisition. For example, you could buy a DMC DeLorean, the car from the Back to the Future trilogy. There were only 9,000 made and you could be the one to purchase the original used from the movie. But, say you drove it ’cause you’re day-dreaming, and end up getting it into an accident which you manage to survive. That car is worth a lot less.
And finally, non-fungible items cannot be divided further like the example of dividing a dollar above. If one were to divide a piece of art or a vintage car, would each piece of that art or vintage car be worth of equal value that could be exchanged? Would you trade the wheels of the DMC DeLorean with someone else for its Chassis for the same price like exchanging two 50 cent pieces that make up a dollar? Probably not.
The Thin Fungible Line
The notion of fungibility and non-fungibility can be a thin line. Occasionally, assets can be considered the opposite to what they are generally considered from an economic perspective. For example, gold is generally considered fungible where one gram of gold is equivalent to another gram elsewhere. Occasionally, if a gold bar is serialized with a number, this turns what is usually a fungible asset to a non-fungible asset. The pure notion of having a legitimate identifying mark on a fungible asset can convert it to a non-fungible asset making it either more valuable or less valuable depending on the story of that asset. This is true the other way round although less often. For example — diamonds. Diamonds can be considered fungible if they come from an area abundant and commonplace region of the world but certain diamonds can be considered non-fungible due to their 4Cs — color, clarity, cut and carat weight — apart from other attributes. But, with the rise in popularity of lab grown diamonds [3], they could move toward being more of fungible asset while traditionally mined could move entirely toward non-fungibility. Time will tell, but as of right now, its just speculation.
Ethereum Request for Comment (ERC)
An ERC is a technical standard that defines the template of a smart contract based on its use case. Originally, these standards started with the idea of fungibility and non-fungibility. Over time, there are quite a few standards for specific use cases. The most popular is ERC-20 — the standard fungible template for a token. There is ERC-721 which is the common template for a non-fungible token (NFT). These templates first started with the Ethereum Homestead project and now have evolved considerably being the most active project in the entire blockchain ecosystem on the planet. Corporations, governments and competitors have copied, borrowed or forked these standards and either made it their own or modified it for their specific purposes. Before becoming an ERC standard, a proposal is made that is heavily revised, commented on by the actively engaged community and if accepted, approved to be implemented into production [4]. Anyone in the world can create a proposal called an Ethereum Improvement Proposal (EIP) to propose a new or modify an existing standard or propose any other issue not associated with ERC technical standards.
Side note: A smart contract is a computer program. This program is colloquially called a token or an operational contract that performs a specific function. Most (if not all), will have a token representing the associated smart contract but this does not necessarily have to be the case (see below). For example, if you provide liquidity in a liquidity pool for a token called ‘FUN’ you will most likely get a token called ‘yFUN’ which is another smart contract (or) token that represents your proportion of ‘FUN’ pooled in that protocol.
20 [5]
ERC-20 ensures interoperability among tokens via the implementation of a standard API and also offering elementary operations such as transferring tokens, getting account balances, querying the total amount of tokens supplied and ensuring token approvals are allowed.
ERC-20 tokens are defined by providing two mandatory arguments:
- The contract’s address
- The number of tokens available
There are other arguments the creator of the contract can include as part of the construction such as:
- A symbol for the token, e.g. ‘AAVE’
- A name for the token, e.g. ‘Aave Token’
- Divisibility of the token — how much fungibility exists in the token. For example, you can divide the token in smaller parts up to 18 decimal places.
There are other aspects of the ERC-20 standard one can go into (possibly in another article) but for the moment — from a users’ perspective and for the context of this article, this is probably more than required.
721 [6]
ERC-721 ensures uniqueness. It’s an open-source ERC standard to build tokens that represent unique bits of information whether that information is text (e.g. Tweet), or an image (e.g. Instagram) or a video (e.g. YouTube). Unlike the ERC-20 token, 721 requires a unique ID. This ID represents the uniqueness of the information in the form of a token, giving it, its non-fungibility property. There are other attributes when programmatically creating the token that is slightly different to 20 but as mentioned above — from a users’ perspective and for the context of this article, this is probably more than required.
At the Intersection
The two standards above are probably the most important out of all other standards. There are other important ones but from a users’ perspective and for the context of this article, this is probably more than required.
So to understand NFTs, one needs to know about ERC-721. And to associate them to spacecraft identity, the next step would be to explore identity from the perspective of a spacecraft. Why ERC-20? Well, I put that because: (a) it was the first standard of them all and; (b) to understand the intersection of 20 and 721 in a later article or, colloquially known in the crypto community DeFixNFTs.
[1] Deutsch, D. (2011). “The flawed multiverse — Physics World”. Physics World. Retrieved 2021–03–04.
[2] “Fungibility”. Investopedia. Retrieved 2021–03–04.
[3] Constable, H. (2020). “The sparkling rise of the lab grown diamond“. BBC Future Planet ! Sustainability. Retrieved 2021–03–04.
[4] “ERC Token Standards”. EthHub. Retrieved 2021–03–04
[5] Fabian Vogelsteller, Vitalik Buterin, “EIP-20: ERC-20 Token Standard”. Ethereum Improvement Proposals, no. 20, November 2015. [Online serial]. Available: https://eips.ethereum.org/EIPS/eip-20.
[6] William Entriken, Dieter Shirley, Jacob Evans, Nastassia Sachs, “EIP-721: ERC-721 Non-Fungible Token Standard”. Ethereum Improvement Proposals, no. 721, January 2018. [Online serial]. Available: https://eips.ethereum.org/EIPS/eip-721.
