We’ve reached the final stretch on topic number 8, and this one has been rising in renown over the past few years. You may have encountered a lot of hype on social media regarding NFTs. In this instalment of our series we will be showing you the ropes in terms of the use and functioning of an NFT (non-fungible token).
In the previous article (8.2) we introduced crypto-tokens as digital assets that can be used as payment tokens, functional tokens or asset tokens.
Most of our cryptocurrencies or tokens are referred to as fungible (they can be traded or exchanged, one for another) [31]. One Bitcoin is always equal in value to another Bitcoin. This property of fungibility of cryptocurrencies make it suitable for use as a secure medium of transaction in the digital economy [31].
While most cryptocurrencies and tokens are fungible (interchangeable/exchangeable), there’s a certain type of crypto-token that is non-fungible (not interchangeable/exchangeable). We at Yknot Blockchain Solutions like to think of an NFT as ‘your unique ticket to board’. If you were to book a trip on a boat, your ticket would be 100% unique – it is stamped with a specific date and time, your name, and your seat or cabin number. No two tickets are the same. You would never be able to purchase a second ticket that is exactly the same as the first, some of the identifiers have to be different in order for the register to work.
NFTs address the need for scarcity, uniqueness and proof of ownership in an increasingly digital market where most digital items can be replicated or sold infinitely. By contrast, NFTs tokenise digital or real world assets and this token can only be owned by one person at a time. Ownership is securely recorded with a digital signature on the Telos blockchain. NFTs are also used as a unique ‘ticket’ to participate in a DAO or other closed group.
Not all NFTs give you entry into something (like a ticket), but some do. The main point we are trying to bring across is that an NFT is unique and one-of-a-kind, which is what makes it so precious.
How do NFTs work
NFTs are cryptographic assets stored on a blockchain with unique identifiers. Each NFT is unique and distinct from another, making them irreplaceable. These NFT cannot be traded or exchanged at equivalency [31]. NFTs facilitate a change in ownership of a physical asset using blockchain. In 2017, CryptoKitties took the world by storm (world’s first blockchain game) in which you could buy and breed a digital cat. Each new cat is a NFT and can be collected. It cannot be replicated, taken away or destroyed. (See cryptokitties.co for more details). The success of CryptoKitties paved the way for NFT to be used for a whole range of other possibilities.
NFTs in Property
In a previous article (4.1) we explained in detail how the ownership of a property can be stored on a blockchain. The blockchain keeps track of the purchase history. The actual property can be represented as a NFT. The property can be traded using the NFT to someone else. We can view the NFT as the digital representation of a title-deed in this case. The holder of the NFT is the rightful owner of the physical property, and this is all backed up by the blockchain ledger.
Other uses of NFTs
Another example of NFT is its application in the domain of artwork. A painting can be represented as an NFT. It can only be owned by one party, and it is unlike any other artwork. The technology of NFTs is also used as a means of identifying people within an organisation or broader community. Since each NFT is unique, it can represent a person with an identification number or it can act as a digital passport. Each NFT can be encoded with additional metadata such as country of origin, department, or role within an organisation.
Just like blockchain, NFTs can either be applied in a public space or it can be applied in a more private (permissioned) environment within a corporation or organisation. The possibilities are endless. For more on NFT see [31], [32].
We hope you have found this article useful towards understanding the multiple uses of NFTs (even slightly) better. Our infographic below gives an overview of how all these terms fit together using the metaphor of a sailing adventure.
** This was Part 3 of a 3-part explanation of money, coins and currencies. In the next instalment we will discuss initial coin offerings, which is where tokens can be acquired. It will be published on medium.com and on our website.
References:
[3] Redka, M., 2021. The Future of Blockchain: Potential Use and Global Impact. [Online] Mlsdev.com. Available at: <https://mlsdev.com/blog/the-future-of-the-blockchain-technology-use-cases-geographical-expansion-potential-risks-and-challenges> [Accessed 22 June 2021].
[4] “Barter – Wikipedia”, En.wikipedia.org, 2021. [Online]. Available: https://en.wikipedia.org/wiki/Barter. [Accessed: 22- Jun- 2021].
[5] W. Newlyn and R. Bootle, Theory of Money, 3rd ed. Oxford: Clarendon Pr., 1978, pp. 1-18.
[9] J. Surowiecki, “A Brief History of Money”, IEEE Spectrum: Technology, Engineering, and Science News, 2012. [Online]. Available: https://spectrum.ieee.org/at-work/innovation/a-brief-history-of-money. [Accessed: 06- Jul- 2021].
[10] L. Fourn, “A Brief History of Ledgers”, Unraveling the Ouroboros, 2018. [Online]. Available: https://medium.com/unraveling-the-ouroboros/a-brief-history-of-ledgers-b6ab84a7ff41. [Accessed: 06- Jul- 2021].
[24] B. J. Drasch, G. Fridgen, T. Manner-Romberg, F. M. Nolting, and S. Radszuwill, “The token’s secret: the two-faced financial incentive of the token economy,” Electronic Markets, vol. 30, no. 3, pp. 557–567, Mar. 2020.
[31] R. Sharma, “Non-Fungible Token (NFT)”, Investopedia, 2021. [Online]. Available: https://www.investopedia.com/non-fungible-tokens-nft-5115211. [Accessed: 19- Jul- 2021].
[32] “Non-fungible tokens (NFT) | ethereum.org”, ethereum.org, 2021. [Online]. Available: https://ethereum.org/en/nft/. [Accessed: 19- Jul- 2021].
