Are NFTs (non-fungible tokens) a fad?
When you think of the word token, what comes to mind? Tokens are digital assets that can represent anything from membership, access rights or other unique identifiers. In the world of cryptocurrency and digital tokens, everything is about fungibility. This refers to whether something is interchangeable with another identical unit. For example, if we say “this gold coin has more value because it has a special inscription on it” then that coin isn’t fungible because its value comes from its non-interchangeable properties. That may seem like a silly example since almost everything we own in real life isn’t fungible. It’s an important concept when talking about cryptocurrencies and tokens like Bitcoin which are designed to be as interchangeable as possible.
What are non-fungible tokens?
Non-fungible tokens (NFTs) are a type of digital token that has properties that make it non-interchangeable with other tokens. In other words, NFTs are unique. Just like you can’t give your house to someone and expect them to give you their house in exchange, an NFT can’t be exchanged with another token. In the real world, a token that is non-fungible could represent something like a rare baseball card or a unique painting. In the digital world, non-fungible tokens can represent digital artwork, unique live events or even digital stocks.
What makes something fungible?
Fungibility refers to the interchangeability of a good or asset. A fungible commodity can be substituted by another of identical quantity and quality. The term is also used more specifically to describe a commodity that can be substituted by another with no loss of value. This same concept applies to blockchain tokens, which are designed to be as interchangeable as possible. The vast majority of cryptocurrencies and blockchain tokens are designed to be fungible because they’re designed to be used as a medium of exchange. You might buy a cup of coffee with a single Bitcoin, but you probably wouldn’t try to buy a house or a car in Bitcoin because the value of that coin would be far, far higher than the value of the house or car.
How are NFTs different from fungible tokens?
Non-fungible tokens are designed with one or more properties that make them non-interchangeable. If you have an NFT, it might be a digital artwork that has been verified as authentic by an expert. Or it could be a unique digital good that can’t be replicated, like a unique baseball card. Fungible tokens, on the other hand, are designed to be interchangeable. They’re primarily used for digital transactions and can be used for anything as long as they’re programmed to be interchangeable. For example, Bitcoin can be used to buy a cup of coffee or anything else you’d like. There are many different types of tokens, but the token type that has exploded in popularity in recent years are non-fungible tokens. In fact, NFTs have become so popular that they’ve led to the creation of a new term: tokenized ecosystems.
Why have NFTs become so popular lately?
The explosion of NFTs was sparked by a few major events. First, the creation of the ERC-721 token standard in 2017 by Axiom Zen opened the door to create non-fungible tokens on the Ethereum blockchain. The popularity of NFTs was also fueled by the launch of CryptoKitties in late 2017. CryptoKitties was the first major gaming application built on the Ethereum blockchain. It allowed users to collect, breed and trade digital cats that were each created from ERC-721 tokens. Because CryptoKitties was one of the first major applications built on the Ethereum blockchain, it was responsible for a significant amount of transaction volume. This put significant strain on the Ethereum blockchain since the network is designed to process a very limited amount of transactions per second.
Are NFTs a fad?
You might think that NFTs are just a fad that will go away once people get bored of them. After all, they’re nothing like the blockchain tokens that we’ve seen in the past. The truth is that NFTs are here to stay and they’ve become so prevalent because they’re the perfect solution to some serious problems in the blockchain space. NFTs have the potential to make blockchain more accessible since people don’t have to understand how blockchain systems work in order to use them. They’re also built for scalability and can be used for almost any type of transaction. NFTs are more than just JPG’s; they are the future of digital assets.
Conclusion
We’ve seen that non-fungible tokens (NFTs) differ from fungible tokens in that they’re non-interchangeable. The explosion of NFTs has been fueled by a few major events, including the creation of the ERC-721 token standard and the launch of CryptoKitties. Ultimately, NFTs are here to stay and they’ve become so prevalent because they’re the perfect solution to some serious problems in the blockchain space.
