Table of Contents
- 1 Who is Using NFTs?
- 2 How Do You Own an NFT Token? Or What Does It Mean to “HODL” One?
- 3 What Are NFTs Used For?
- 4 Is There Any Other Way for Me to Own an NFT?
- 5 How Are These Tokens Created?
- 6 What Can I Do with These Tokens?
- 7 What are the Different Types of NFT Tokens on the Market Today?
- 8 What is the Difference Between Fungible and Non-Fungible Tokens?
- 9 Who Should Buy an NFT token and Who Shouldn’t Buy Them at This Time?
Non-Fungible Tokens or NFTs are an interesting topic that certainly divides opinions. While there are many positives to NFTs, they also have some significant downsides. They offer a unique opportunity to create digital scarcity and allow for one-of-a-kind items in the gaming space, mitigating fraud. Also, since the advent of ERC721 – the non-fungible token standard for Ethereum – more than 2,000 unique digital assets have been created within the Ethereum blockchain.
NFTs are pretty simple to understand once you get your head around their primary function: they represent virtual collectibles and cannot be interchanged with one another. NFTs can represent digital assets such as CryptoKitties, CryptoPunks, digital art gallery items, tickets to the biggest sporting or cultural events, unique collectible cards, or anything else that you can think of. They are specifically designed to be used in conjunction with an open standard that governs what they represent and how they behave. This means it is possible for developers to create their own NFT standards for their own digital assets.
On the surface, NFTs sounds like a brilliant idea, and they do offer some great benefits to gamers and developers alike.
Who is Using NFTs?
Early on, there were only a handful of games that used NFTs, but that number has rapidly expanded and now includes: Artonomous, CryptoFighters, Etherbots, Etheremon, Decentraland, CryptantCrab, Gods Unchained, and many more.
However, NFTs are not limited to just games. They have also been used by digital art galleries to prove that the artworks they sell are unique with none being the same as another. And they are also used to prove ownership of unique collectible cards, such as those created by Axie Infinity.
NFTs will be available for sale on the blockchain during the upcoming OAX token sale (ICO). The OAX platform will allow for decentralized exchange of NFTs and all trades will be handled peer-to-peer.
Some of the benefits to using NFTs includes:
- Digital scarcity can now be created, as there is no limit as to how many items of a particular type can exist on the blockchain at any given time. This means that each item can have its own unique history and this cannot be faked by fraudsters.
- Virtual items are proven to be owned by the owner. Items can only be traded or transferred if the new owner is able to prove that they are, in fact, the owner of said item. This reduces fraud and ensures that virtual assets cannot be duplicated or used more than once.
- Using NFTs also allow users to interact with smart contracts. By using NFTs, users can receive rewards for their actions (e.g., completing achievements).
- Since non-fungible tokens are ERC721 compliant, they will behave the same across a variety of different dapps and not be limited to a single one. The marketplace will be open source so that anyone can create their own marketplace for their own types of NFTs.
At first glance, it may seem like NFTs are the perfect solution to creating fair and unregulated economies with digital assets. However, there are some significant issues that need to be considered before jumping on board.
The main issue is scalability. Because each non-fungible token is relatively large, the amount of data that needs to be stored for each one will quickly exhaust blockchains.
Another issue of concern is that NFTs are reliant on outside third-party applications. If these applications or websites become inaccessible or no longer support non-fungible tokens, then the NFTs will be useless.
The non-fungible token standard is certainly an interesting concept that looks to create digital scarcity with unique virtual items, but it seems like there are still some issues that need resolving before widespread adoption can occur. If they can be resolved, then NFTs stands to revolutionize the way social interactions are modeled on the web.
How Do You Own an NFT Token? Or What Does It Mean to “HODL” One?
One of the most common questions I receive about Non-Fungible Tokens (NFTs) is how to own them and what does it mean to “HODL” one. NFTs are not like cryptocurrencies, which allow you to sign off ownership with your private keys. Ethereum was designed specifically as a decentralized platform that runs smart contracts, yet is still ultimately owned by the Ethereum Foundation.
It’s the same story with NFTs–you don’t own anything. But if you hold an ERC-721 token, it is registered on the blockchain as one specific unit of ownership. So what do you actually own? You own a copy of that one NFT token. Think of it as a unique piece of art, like a painting. If you own the original painting, then you control that specific copy and it cannot be copied or “forged.” While this has many benefits, it also restricts mass ownership and trading of NFTs.
Each ERC-721 token issued on the Ethereum blockchain has a different ID, and there is only one single token with that particular ID. So if you own the original art piece, then it’s yours and there is nothing anyone else can do about it.
What Are NFTs Used For?
The initial purpose of NFTs was to serve as collectibles in non-fungible games, such as the incredibly popular CryptoKitties. Yet NFTs have a wide range of uses in almost any segment that’s looking to tokenize something–including securities and collectibles.
Some may be hesitant to use blockchain for their asset tracking or product management because they might not actually own anything if it’s on the blockchain.
While it’s true that NFTs cannot be owned by a single person, it is registered to the blockchain as proof of ownership. So if you own an original painting, then no one can claim otherwise because there’s only one specific piece of art with that ID.
Is There Any Other Way for Me to Own an NFT?
Yes! Here’s the kicker–you can own many different pieces of art if it’s issued as a multi-fungible token (MFT). With an MFT, each unit is essentially identical and interchangeable. This means that you could own several paintings at once, which is useful for securities and collectibles alike. It even enables unique new products that are different but interchangeable.
For example, if someone owns the rights to a tokenized house, then each token is essentially identical and can be traded as such just like those for fungible tokens. Now, those who own shares of this security could hold several different individual tokens as part of their ownership.
How Are These Tokens Created?
One of the most important steps in creating an NFT is to make sure it’s registered on the blockchain because that ID will never change. All ERC-721 tokens are created by a smart contract, and you won’t release them until they’re deployed and registered to your Ethereum address.
What Can I Do with These Tokens?
Many NFTs allow you to create unique, one-of-a-kind items that are branded and easily recognized. This can be anything from collectibles like CryptoKitties to non-fictional artwork, such as the painting of Elvis featured in American Excess. NFTs are also used for digital assets that are linked to different accounts, such as trading cards in games.
The most common use for NFTs is to tokenize securities that are compliant with U.S. regulations by creating a security that you own on the blockchain. This is done through an STO (Security Token Offering) where each unit represents one share of stock in the company. This makes it easier to trade and own shares of a company, as well as simplifying the process of stock settlement.
This is also useful for asset tracking or collectibles because each token has a unique ID that’s registered on the blockchain. If you want to create a fungible token, then make sure you use an ERC-20 standard token.
And the biggest advantage of NFTs is that they make it easier to create unique, non-fungible items–such as physical objects or digital assets–as long as you have a smart contract developed for ERC-721 tokens. Thanks to being on the Ethereum blockchain, all of your data will be protected and safe from fraud or tampering.
What are the Different Types of NFT Tokens on the Market Today?
Non-fungible tokens (NFTs) are unique or non-interchangeable cryptographic tokens that represent ownership over digital, physical, or intangible assets. NFTs include real estate deeds and property titles, collectibles such as CryptoKitties and Etheremon, gaming items, software licenses, warranties and copyrights, and other assets.
NFTs are one of the fastest growing areas in blockchain―and all of technology―today. They allow for more engaging user experiences that provide better security (thanks to cryptography) and better scalability (because they can be managed on dedicated blockchains or side chains), compared to traditional fungible tokens (i.e., ERC-20 tokens). The following are some examples of the types of NFTs you might see on the market today.
Non-fungible tokens have been around since 2013, when a group at Microsoft released a whitepaper called Enabling Blockchain Innovations with Pegged Sidechains. In this paper, various use cases were explored for NFTs. One of the most recognizable examples is ERC-721, which was proposed in late 2017 by Dieter Shirley, an Ethereum developer.
What is the Difference Between Fungible and Non-Fungible Tokens?
What are fungible tokens? Fungible tokens are not unique or distinct from each other in any meaningful way, so they can be substituted (exchanged) one-for-one with each other. A fungible token may represent something that is unique or valuable, like currency or cryptocurrencies; but it does not matter which individual tokens are exchanged, because the exchange is equivalent to another.
What are non-fungible tokens? Non-fungible tokens are unique or distinct from each other. They are not interchangeable, because there is no one token that represents the same thing as another individual token. NFTs represent something that might be unique or valuable, like collectibles, titles, deeds, assets, rights, etc.
Non-fungible tokens have been described as “collectibles you can carry in your wallet.” You might think of them as being similar to baseball cards. Baseball cards are not interchangeable, because each card represents a unique player. The same is true for non-fungible tokens―they represent something that is unique.
Who Should Buy an NFT token and Who Shouldn’t Buy Them at This Time?
Non-fungible tokens are best for users who want to be able to store and use a variety of unique digital assets that they own. In other words, if you plan on purchasing or using an NFT token, make sure it is something you really need—otherwise, you may end up not using it for long.
If you want to buy an NFT token for the short term and sell it at a later date, make sure you can exit your position. Also, be aware that liquidity will likely be low (at least initially) and the price may not reflect true underlying value for some time.
If you are thinking about selling or trading an NFT token, be aware that there hasn’t been a secondary market for the sale or trade of NFT tokens. In other words, they aren’t listed on cryptocurrency exchanges at this time—and likely won’t be any time soon.