How Nervos CKB Could Facilitate Non-Fungible Tokens
This is the fourth in a series of blog posts exploring the key ideas behind the development of Nervos. Each article will alternate between a core tenet of Nervos’s governing philosophy, and a use case that illustrates how these principles are intended to work in practice. Today, we focus on non-fungible tokens, or NFTs, and how Nervos’s design can facilitate their growth and adoption.
The Potential of NFTs
What do we mean when we call something fungible or non-fungible? Simply put, an asset is non-fungible when it cannot be swapped out or replaced with any other asset, even if that asset is identical to it. When you hand the cashier a $20 bill to pay for your morning coffee, and he hands you back a $10 bill, a $5 bill and two quarters, you have paid $4.50. It doesn’t matter that you gave him one banknote and he handed you back banknotes and coins of different denominations — a buck is a buck. Money is fungible.
But some things are not fungible. If you lose your grandmother’s diamond ring, you can never replace it. A different ring of the same cut and value cannot take on the unique, emotional value associated with the lost item. It was a non-fungible asset.
A non-fungible asset represented by a token on a blockchain therefore is a non-fungible token (NFT). And NFTs can offer major benefits in the areas of finance, security, identity, and other aspects of life. They can take as many forms as builders can imagine — but to date, they have faced obstacles related to blockchain’s scalability “trilemma.”
Nervos CKB, Designed to Scale, can be a Home for NFTs
One of the best illustrations of the challenges NFTs face is CryptoKitties, which famously slowed Ethereum to a crawl in 2017 when users initiated many more transactions than the network could handle.
The issue is that the computing power needed to store and exchange NFTs has been too high to be processed on a Layer 1 blockchain like Ethereum. But Nervos is purposefully designed as a multi-layer network, with Layer 1 reserved for the store of high-value assets that require the most “horsepower.” This architecture, we believe, is what can ultimately move blockchain technology beyond the “trilemma,” as Nervos Architect & Researcher Jan Xie has argued.
The multi-layer approach, which is also discussed in our recent blog on scalability, moves high-volume transactions off of Layer 1 onto other layers where they are not competing with the central assets being stored by the network. This opens up virtually limitless possibilities for NFTs to flourish on Nervos. So what might some of these assets look like?
Digital vs. Non-Digital NFTs
Digital NFTs are just what they sound like: digital assets tokenized and written to a blockchain. A CryptoKitty is an obvious example of this. But opportunities for the development of digital NFTs are not limited to the category of games and entertainment. A more high-stakes use case is identity itself — a person’s sensitive details, documents, history and other information uniquely and securely stored on a blockchain. Digital NFTs encompass an enormous range of potential use cases, from the trivial and playful to the essential.
Non-digital NFTs present challenges not faced by their digital-only counterparts. They correspond to items in the physical world — as in the example of the diamond ring — and can range in size from something tiny, like jewelry, all the way up to commercial real estate properties. The added challenge around non-digital NFTs is in connecting something in the physical world to a blockchain in a way that is sufficiently secure. Being written to a blockchain is all well and good, but of little help if the physical identifier is a simple QR code that can be easily copied.
Nervos CKB as the Infrastructure for NFTs
Nervos itself, though, is agnostic to these challenges. What we have built is a network, a foundation, that is almost infinitely flexible and capable of handling assets of virtually any value. It is up to developers to put their vision into action on top of Nervos CKB and build NFT solutions that solve the needs of their specific use cases. Undoubtedly, some will be digital like CryptoKitties or crypto-art assets. More than likely, others will be devoted to items in the physical world, like fine art, identity, or real estate. Whatever solutions arise, Nervos CKB is designed to offer the most robust and usable infrastructure to support them.
NFTs are a clear use case for a multi-layer blockchain, and we would not be surprised if they found a home on Nervos CKB — which is specifically designed to solve their biggest challenges. But NFTs are still just one of many important aspects of Nervos that we explore in this series. The next installment will look at Nervos’s innovative token economics. Please check this page for regular updates over the coming weeks.
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