With their ease of use and interoperability, non-fungible tokens (NFTs) have quickly become the mainstay of the blockchain gaming and cryptocurrency investment industries. However, it wasn’t always this way; the NFT was only introduced to the world in 2017 with Crypto Kitties, an Ethereum-based game that allows users to buy and sell crypto-collectibles as they would with any other crypto asset like Bitcoin or Ether.
What are non-fungible tokens?
Fungibility is a key concept to understand when talking about cryptocurrencies. In order for a token to be fungible, each token should be just as valuable as every other token of that kind. This is why one dollar bill will always be worth one dollar—no more, no less. With crypto, however, things aren’t that simple.
Many cryptocurrencies have been deemed non-fungible tokens—crypto with unique features and sometimes unique information attached to them. NFTs are often referred to as colored coins and they were popularized by Vitalik Buterin in 2014 when he proposed using them in his whitepaper for Ethereum.
Where did they come from?
NFTs were first conceived by Ian Miers, Robby Walker, and Bruce Zarker in a white paper called BitBeat: Bitcoin Transactions for Fun and Profit. They describe how non-fungible tokens could be used to create multi-party transaction types that wouldn’t require all parties to hold identical assets. Two examples of these are prediction markets and lotteries.
They also explain some of the possible use cases and one real-world example of a platform that implements non-fungible tokens — Namecoin — but only briefly.
Why are they important?
One of Ethereum’s original selling points was its potential to act as a platform for so-called NFTs. These are assets that can be owned and controlled by users in a way similar to how digital assets work on other blockchains, such as Bitcoin.
Yet for all their importance in Ethereum’s pitch, it has taken developers some time to start creating more than just collectibles. That’s started to change recently, however; now we are seeing projects like 0x launch into beta with a working platform, making their mission —to create an open marketplace for decentralized token exchange—look more achievable.
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How do they work in real life?
Today, we’re going to explore how NFTs might change a few different industries. Let’s take a look at art, baseball cards, and collectibles—some of which are entirely new industries that can be created with NFT technology. A quick bit of background about what NFTs actually are: NFT stands for a non-fungible token or non-fungible asset. Basically, it means every item on a blockchain is unique and distinguishable from any other items in that chain.
These assets can be anything from pieces of digital art to fancy sneakers to collectibles like baseball cards. The possibilities are pretty much endless!
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What can they be used for today?
One of NFT’s most popular use cases today is in video games, where players can purchase, trade, and collect unique items in a variety of virtual economies. Cryptokitties is one popular example, where users can buy or sell unique cats using Ethereum.
Virtual reality applications are another obvious application for NFTs – imagine your favorite character from a game carrying over into any other app or game that you play on your smartphone.
For more examples and thoughts on how to apply non-fungible tokens to real-life situations, check out our guide to understanding non-fungible tokens.
What is their future?
Despite their revolutionary potential, NFTs have yet to take off in a major way. Just as social media changed our lives, it could be said that NFT technology will change our everyday lives in ways we can’t even imagine. So where does all of that leave us?
We have a lot to look forward to, but what do we know for sure? I guess only time will tell…