Mista ₿itniq, [18.02.21 10:50]
What are NFTs?
After we have been able to observe the DeFi hype in the last few months, the next strong trend seems to be emerging. NFTs (non-fungible tokens) are coming back into the spotlight after being increasingly forgotten over the past few years. It is a legitimate technology when it comes to building a proper blockchain-based economy that can beautifully complement digital currencies like Bitcoin.
Non-fungible tokens are a very specific type of token and each represents a single asset, or identity, or ownership. Through NFTs, a wide variety of items such as assets and also data can be digitized. In the long term, this will result in a large number of possibilities that we can't even properly assess today.
In the following, we'll explain to you what exactly non-fungible tokens are, what areas of application there are, and how NFTs could permanently change the blockchain sector. NFTs are something that everyone interested in blockchain technology should watch.
Before we get into the non-fungible tokens, first a brief introduction to "fungibility". This is understood as the ability of a currency to have a standard value that is accepted by all parties (here: merchants).
The 100 EUR bill in my wallet is worth the same as another person's 100 EUR bill and will be accepted by a merchant in Spain as well as by a merchant in Germany. So the euro and other FIAT currencies are fungible. Bitcoin, despite its high volatility, is also fungible.
Why should NFTs be used?
NFTs are non-fungible, which means, in a nutshell, no NFT resembles another, they have a different value because they each represent a different well. When considering meaningfulness, it is important to differentiate between currencies and tokenized items/assets.
You can think of an NFT as essentially an entry in a database that records ownership of all kinds of assets. A mundane, yet good example of NFTs are the "CryptoKitties" on the Ethereum blockchain. There are thousands of these digital cats as collectibles, but each one differs from all the others via different properties such as the name, fur and eye color, etc. - whoever bought such a CryptoKitty receives an NFT.
NFTs open up a whole new range of possibilities for the economy of the future, including in connection with topics such as IoT, the Internet of Things. We will take a closer look at some of the areas of application for NFTs below.
1. Collectibles on the blockchain
A good example of collectibles on the Blockchain via non-fungible tokens has already been mentioned with “Cryptokitties”. However, the market for collectibles is of course much larger and does not only include funny cats, which nevertheless serve as a prime example for this sector.
An NFT can be useful for all collectibles. Especially in cases where authenticity, not just ownership, is at stake, such as valuable paintings or sculptures. These could be verified and authenticated by experts before creating an NFT whose ownership would simultaneously reflect the ownership and authenticity of a collectible. In this way, two central problems of the art world, namely the counterfeiting of valuable works and the fraudulent trade in stolen pieces, can be curbed.
2. Online Games
In many online games, characters can collect in-game currencies, often in the form of skins (clothing, weapons), and trade them with other players. If these in-game currencies were each made an NFT, players could also trade and barter them in the real world.
This could create entirely new economies for fictional goods. One example of this is the Decentraland project, which interactively creates a world of its own from which players can buy a piece of land in the form of an NFT. However, we are still in a very early phase here. We can assume that online games in particular will turn more and more to non-fungible tokens and their integration into game concepts in the coming years.
Mista ₿itniq, [18.02.21 10:50]
Admission tickets are another area that will probably be among the first to be so truly impacted by NFTs. Ticket trading, both online and offline, has been flourishing, especially since the introduction of the Internet and corresponding trading platforms. One problem is often counterfeit tickets, which are used to defraud buyers. With the involvement of NFTs in this sector, these problems could be avoided.
4. Identity and Certification
Things get really interesting when we shift the focus from real-world goods to more abstract things, like controlling identities using NFTs. Whether it's a birth certificate, passport, or driver's license, as an NFT, one could communicate more efficiently with government agencies that require personal information. Of course, this is only about ensuring that personal data is used correctly, not about trading driver's licenses, which is obviously not possible in this way.
Currently, the most widely used token standard for an NFT is Ethereum's ERC-721. This standard allows developers to create non-fungible tokens and provides the template of the corresponding smart contract framework. A uniform token standard are important because they should naturally be able to be transferred by as many users as possible. As the Ethereum blockchain is currently the most widely used blockchain, the ERC-721 is currently the preferred standard token for all NFTs.
Conclusion: NFTs - Innovation with a Future
NFTs are still very new and even people interested in cryptocurrencies often don't know what to do with the term. At the same time, the technology is not new and was already thought of in 2016. However, the first successes only came with Ethereum, especially through the CryptoKitties mentioned at the beginning.
However, the potential long-term impact is hard to foresee, as NFTs are not limited to ownership claims of digital objects. They also give much more freedom or control over their works back to the creators of these objects.