Non-Fungible Tokens for Dummies
Non-Fungible Tokens for Dummies. Noah Pollack
Do you Know About Non-Fungible Tokens??
Ethereum Request for Comment: Non-Fungible Token Standard # 721. Better known as ERC-721 tokens, or just Non-Fungible Tokens (NFTs); are Tokens on the Ethereum blockchain that can offer unique characteristics which make them different from one another and digitally scarce.
Before we dive into the what, or the why regarding NFTs, it is important to know the difference between fungible and non-fungible assets.
The Merriam-Webster dictionary defines fungible as “capable of being substituted in place of one another” The easiest-to-understand real world example of fungible assets are dollar bills of the same denomination. If I loan you a $1 bill, I will not care which of the other 11 billion $1 bills I get in return because the value of those two bills will always be exactly the same. All cryptocurrencies are fungible assets too, if you are receiving a payment in bitcoin, it makes no difference which of the individual bitcoins end up in your wallet because, although the value of bitcoin may change, 1 BTC will always equal 1 BTC. The same is true with gold, other commodities, and shares of a company.
Non-Fungible assets, on the other hand, do differ from “thing” to “thing”. Take paintings as an example. An original painting and an exact copy appear to be identical when you look at them, but everyone knows the value of those two things can differ massively because of information about the original. Art has value based on the unique characteristics each piece holds, such as; the artist, the past owners, and how much it has sold for it in past transactions. Another example of a non-fungible item is a plane ticket. Two plane tickets look the same at first glance, but the information stored in the plane ticket gives each one a unique purpose and value. More examples of non-fungible assets are anything with value that can not be exchanged for goods at a store such as; baseball cards, antiques, or even sneakers.
Now that we know the difference between fungible and non-fungible assets, let’s look take a look at non-fungible tokens (NFTs). Although other chains have started implementing their own non-fungible protocols, the most widely used is the ERC-721 that runs on the ethereum blockchain.
Why would anyone want a non-fungible token if you can’t spend it? Because non-fungible tokens are not a currency, NFTs represent a unique asset on the blockchain as smart contracts.
Smart contracts are computer programs that act only after specific conditions are met. The best example would be calling it a digital vending machine. With a real vending machine, you put money in, choose what you want and it comes out. This all happens with complete trust and without a third party facilitating the transaction. In the case of NFTs the smart contracts are used to record specific information about each individual token, mostly to validate the origins.
Digital collectables are the most common usage for NFTs right now. The most popular of these are Crypto Kitties. Crypto Kitties were actually the inspiration for the ERC-721 proposal, in December 2017 when Crypto Kitties was releases as a decentralize app (dApp) they quickly gained popularity as everyone wanted to get their hands on these valuable, one of a kind, digital cats. While transactions took place in cryptocurrencies, and that data was imprinted on the blockchain, the actual unique data about the Crypto Kitties did not exist on the chain. The popularity of these digital collectibles led to the ERC-721 proposal which now lets us store a ton of specific data about each token, in smart contracts, on the ethereum chain. The highest price ever paid for a Kitty was 600 eth ($170,000 at the time of sale)
Crypto Kitty #1 owned by Eth Address: 0x79bd592415ff6c91cfe69a7f9cd091354fc65a18
All Crypto Kitties and other ERC-721 token can be viewed on https://etherscan.io/ just like any ERC-20 token transaction. You can check out a huge ERC-721 wallet full of Crypto Kitties here. https://etherscan.io/address/0x79bd592415ff6c91cfe69a7f9cd091354fc65a18#tokentxnsErc721
The data stored in the ERC-721 tokens can be anything about the asset, such as; when it was created, who created it, who the different owners were, or how much it as previously been sold for. This could lead to huge breakthroughs in verification for art, collectables, medical records, and even identification (like passports and state IDs). Although may be many years away from having the deeds to our homes or our birth certificates being turned in Non-Fungible tokens; at least for now you can take advantage of this world changing technology to grow a sweet collection of super rare digital cats!
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