The Non-Fungible Token Craze
By David Hobbs
The hobby of collecting can be traced back to the 16th century, which makes perfect sense. People love uniqueness. People seek comfort in having belongings. People look for ways to extend their identities. But what happens when our fascination with collectibles enters the digital realm?
Crypto-Collectibles have been the talk of tech town for the past little while, but their significance is still a mystery. To speculate whether or not they’re the real deal, it’s important to understand what they actually are and how they came to be.
Spoiler: it involves blockchain, fungibility and a whole lot of other tech jargon.
Collectibles in the “Real World”
People have traditionally put money into collectibles that are scarce or rare and that have a deemed value. These are real world products like wine, trading cards, comic books and Beanie Babies — which at one point sold for five figures. There are only so many available to own, which drives a perceived value.
Lets jump deeper into an example using wine and a little Econ 101.
Fictional winery The Spotted Dog was established during the summer of 1965 in California and produces 10,000 bottles each year. They sell only from approved establishments and each bottle is numbered and certified. In 2015, they were picked up by Wine Sucker Magazine as the number one wine on the planet. Suddenly, everyone wanted to own a bottle of Spotted Dog wine, however there were only 10,000 bottles available each year. They get bought quickly and are very scarce. Treasured, even. Their price goes from $20 a bottle to $250 a bottle. Not only that, but an earthquake in 2017 destroys half of the bottles for sale. Now the surviving bottles are worth $1000 each. The important takeaways here are that this wine has a limited number of bottles and they are certified as genuine. People would pay $1000 because they believe that as the number of bottles available gets more scarce, the price will rise.
Digital Objects and the Bitcoin Revolution
Digital objects have lacked the same perceived value than those of the real world because they are easy to replicate. You cannot simply copy and paste a bottle of wine (wouldn’t that be nice). However, you can copy and paste an image of your favourite Pokemon creating an identical digital replication. Unlike our wine example, there can be an unlimited number of replications and there is no way to tell if the replication is the first, second or millionth — no way to certify it.
This all changed with the introduction of Bitcoin. Well, technically it was the underlying technology that powered Bitcoin called blockchain. Sound familiar? Blockchain has been one of the biggest buzzwords in tech for some time now. It’s probably been explained to you by a coworker, a late night talk show host or maybe even your grandmother. With that said, let’s dive a bit into the tech so we’re all on the same page.
The Basics Behind Blockchain
Blockchain is a digital ledger of records organized in ‘blocks’ that are linked together by cryptographic validation. It is a digital storage that is the consensus of truth. There’s a couple key points to remember about blockchain. Firstly, the ledger is neither managed by any single entity or organization nor is it stored in a centralized location. Secondly, the ledger block validation system results in new transactions being added immutably (they cannot be edited) to the chain and old transactions being preserved forever for all to see. It’s transparent and resilient. Moreover, it has the power to be digitally scarce, something unheard of in the internet age of abundance.
So how do we go from bitcoin and blockchain to crypto collectibles? It’s all due to something called fungibility.
Fungibility is a key term when it comes to crypto-anything. When something is fungible, it is able to replace or be replaced by another identical item. It is an assets’ interchangeability with other assets of the same type. For instance, cash raised for one purpose can easily be used for another. My ten dollar bill can be exchanged for your ten dollar bill, or your ten loonies. Our assets are interchangeable, meaning that cash is fungible.
Bitcoin functions the same way, it’s thought of as fungible. Crypto collectibles, on the other hand, are non-fungible. They’re technically referred to as non-fungible tokens- NFT’s. They come in the form of digital kittens, digital puppies and any other digital collectible imaginable, leaving a lot of room for potential growth.
A little overwhelming, huh? Let’s summarize. A crypto-collectible is a cryptographically unique, non-replicable, non-fungible digital asset. Unlike cryptocurrencies, which require all tokens to be identical, each crypto-collectible token is unique or limited in quantity. This element of non-fungibility paired with blockchain’s creation of digital scarcity is what makes crypto collectibles so alluring.
More Than Just a Fad?
There’s a lot of debate over whether crypto collectibles are a fad or the future. Although the thought of accumulating digital pets or avatars can seem absurd, crypto-collectibles are actually mirroring human psychology. The excitement of the hunt and the element of social competition will continue to drive the value of NFT’s. People gain satisfaction in seeking and owning things, and we’re about to see this social tendency enter the digital realm.
At TTT, we recognize the potential of crypto collectibles. We’ve been playing around with our own crypto collectible libraries and are considering finding and partnering with organizations with licensing opportunities that we feel people will desire. We see the future as a welcoming space for inventive, creative and profitable uses of crypto-collectibles. If you ask TTT, the future is non-fungible.
Originally published at www.twotalltotems.com on May 22, 2018.