Wednesday, October 20, 2021

What is NFT?

 

What is NFT?

NFT, or Non-Fungible Token, is a concept that is related to fungible tokens. If we compare it to the real world, fungible tokens are like currency: if you have $500 USD, you can divide it up, spend it in parts, get spare change, and continue to make more purchases with the change you receive. On the other hand, non-fungible tokens are unique and indivisible. Some examples could be: artworks, treasures in videogames, property deeds, or even certificates to prove wine provenance. When you trade a non-fungible token, you no longer own it, and since it is indivisible, there is no concept of spare change.

NFTs are issued on distributed ledgers on the blockchain. As such, as long as the ledger and the chain still exist, the record stating your NFT ownership will be intact. It will not be tampered with, removed, or disappear. When an NFT is issued, the contract will contain identifying information of the token including: the ID of the token, and a way to link to the assets it represents. These are the 2 main reasons why NFTs are optimal to prove a person’s ownership of an asset:

  1. The information is unalterable once it is on the blockchain
  2. NFT tokens are intrinsically unique, immutable, and indivisible

Similarly, NFT’s unique properties allow for it to be used in videogames to represent treasures or characters in the game. The most prominent example would be that of CryptoKitties. CryptoKitties is a blockchain game on Ethereum that allows players to buy, breed, collect and sell virtual cats. In the art world, NFTs can be applied to paintings, music copyrights, and various collectibles. A notable example would be encryption artist Beeple’s sale of their work: EVERYDAYS: THE FIRST 5000 DAYS, that was auctioned off for $69.34 million USD. NFTs are also commonly used in other industries in the form of digital certificates, identity authentication, and domain names.

So, how did the concept of NFTs come about? It started towards the end of 2017 when Dieter Shirley, CTO of CryptoKitties, released EIP-721 (Ethereum Implementation Proposal 721.) EIP-721 was different from ERC20 standard, which was very popular at the time and had highly sought-after ICO tokens. EIP-721 proposed, for the first time, tokens that were not interchangeable. Soon after, the concept of NFTs started to gain traction in different applications, including CryptoKitties. Nowadays, it is increasingly common to see NFT auctions hitting record numbers in the news.

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