The cryptocurrency market has exploded over the past year, and it’s easy to overlook some of the more obscure projects that are out there. One of these is a token called Non-Fungible Tokens (NFT). This token is a cryptocurrency asset that holds value, like Bitcoin or Ethereum.
What are Non-Fungible Tokens?
Non-fungible tokens or NFTs, as they are commonly known, are digital collectibles. They are similar to cryptocurrencies in a way that they are digital assets that can be traded, but unlike cryptocurrencies, they represent one-of-a-kind virtual items such as CryptoKitties. NFTs are similar to digital trading cards and make use of the blockchain’s unique properties of transparency and immutability.
NFTs are different from cryptocurrencies like Bitcoin and Ethereum in a way that they do not require the same level of security, as they are not used as a currency. NFTs can be traded on marketplaces which are sites using wordpress hosting and can be used to represent digital assets like unique artwork, in-game items, or physical assets like a house.
NFTs are also different from cryptocurrencies in that they do not have their own blockchain. Instead, NFTs are stored on the blockchain of a specific game or platform.
Characteristics of NFTs
Let’s take a look at the characteristics of NFTs that make it different from other cryptocurrencies.
Non-fungible tokens or NFTs help provide that uniqueness by creating metadata specific to the asset or thing. For example, Decentraland sells virtual pieces of land, and each piece of land has unique metadata that describes its coordinates. The coordinate information can prove the ownership of the land in question while providing specific details about it as well.
One cannot split non-fungible tokens. For example, if you don’t have enough money to purchase a full bitcoin, you’d be able to split a bitcoin into smaller denominations in order to buy some. Denominated units of non-fungible tokens are often known as Satoshis (named after the creator of bitcoin). However, this is not possible in the case of NFTs, they will have to be bought as a whole.
Rarity is a major characteristic of NFTs that makes them stand out among the rest. Traditional ERC20 tokens permit the creation of infinite amounts but this does not happen with NFTs (this applies to each type of unique token). Rarity guarantees only one copy of a particular NFT can ever exist which makes them so highly valued among collectors.
How can NFTs be used?
Non-fungible tokens (NFTs) are used for tokenizing anything with a virtual digital footprint. An NFT can be used to create marketplaces for virtual land parcels, artworks, or ownership licenses for example, and have been used increasingly by real estate companies, lawyers, and entertainment studios. Since NFTs represent unique things in the world that are difficult to replicate, they can be bought or sold at a transparent marketplace as everyone can verify their authenticity. In June 2021, Binance launched its own NFT marketplace but was quickly followed in October 2021 by rival Coinbase announcing its own plans for an NFT marketplace with over 1.4 million users signing up for the waitlist in the first 48 hours of that announcement!
How do NFTs work?
Token standards such as ERC-20 and ERC-721 can be thought of as functions that specify rules for specific tokenized assets. Since these are functions, they also have inputs and internal variables (where applicable) which allow them to behave in different ways.
Non-fungible tokens can be used to add specific attributes to your blockchain project, providing even more (and much-needed) context. For example, they can prove the ownership of an individual person and their relevant information attached to that person, like work history or any references they may have. Alternatively, they could show a company’s position within the supply chain along with the necessary product data required so that everyone involved knows how things got there.
The challenge of identifying and standardizing non-fungible tokens, their functions on blockchains, and executing smart contract protocols to manage the management and creation of non-fungible tokens is still relatively complicated. Current decentralized apps and platforms for the creation of non-fungible tokens are still being developed making them not only difficult but also expensive to create – there is a need for minimalized development costs by creating new decentralized frameworks, protocols with unified standards support – helping all developers embrace blockchain technology to share in the success.
How to buy NFTs?
The first step in buying non-fungible tokens is to decide which platform you want to use. You can find the most popular NFT platforms here. There are several different platforms to choose from, each with its own pros and cons. The most popular platforms are OpenSea, RareBits, and SuperRare.
The next step is to create an account on the platform of your choice. Once you have created an account, you will need to deposit some cryptocurrency into your account. This is usually done by sending the funds from a wallet on your computer or mobile device. You can then use this cryptocurrency to purchase NFTs.
Once you have purchased your NFTs, you can transfer them to a wallet on the blockchain. You will then be able to view your tokens on the blockchain and see how many of them you have.
Projects actively using NFTs
Many projects have introduced non-fungible tokens (NFTs). Let’s take a look at some of the most prominent projects that use this technology.
It can be argued that CryptoKitties was the first mainstream use-case of non-fungible tokens (NFTs). The concept closely resembles that of Pokémon Go. In Pokémon Go, you can collect various types of pokémons which have different traits and characteristics. With CryptoKitties, the user can collect a variety of cats that exhibit different properties and traits. To obtain a new cat, the user will typically have to breed their cat with another cat in order to get one with new properties or traits that are similar to those in their favourite cat.
Decentraland is a blockchain-based virtual reality platform powered by the Ethereum network. It’s built on a decentralized ledger, which means content creators can develop their own virtual land or sell individual parcels of virtual land to users.
Decentraland gives users an opportunity to immerse themselves in a 3D world and interact with others in a completely new way. Users can create their own customized avatars and explore the vast landscape that has been created for them. Once they’re finished exploring, they can purchase land, build unique structures, and host events.
The emergence of non-fungible tokens has changed the way that people think about digital assets. The idea of owning a unique token is something that appeals to many people, and it will be interesting to see how this technology develops in the future.
Hope this article made it easy for you to understand what are Non-Fungible Tokens and proved to be helpful for you!