What exactly are NFTs? Understanding the world of non-fungible tokens
A guide to everything you need to know to about NFTs and their link to the metaverse.November 19, 2021
Let’s start from the basics and define non-fungible tokens (NFTs). A Non-Fungible Token is a unit of data stored on a digital ledger, most commonly known as blockchain technology. This structure certifies a digital asset to be unique and therefore not interchangeable (non-fungible).
For example, imagine you had the original copy of The Hobbit written by J.R.R. Tolkien himself (quite unique, right?). How would you feel if you lent it to a friend, and then a week later, they returned a similar book with a similar cover? I bet that would make you upset, because a similar book would not hold the same value as your original one. In other words, the original copy is a non-fungible collectors’ item and is not interchangeable with other similar items.
The same goes for a NFT. The architecture of blockchain technology allows us to input unique identification codes and metadata to distinguish NFTs from each other.
How is an NFT different from cryptocurrency?
The main difference that NFTs have from cryptocurrencies is their fungibility. Unlike NFTs, cryptocurrencies can be traded or exchanged at equivalency. That means that they are identical to each other and, therefore, can be used as a medium for commercial transactions.
Exploring different types of NFTs
A NFT is verified via the blockchain ledger for its unique identity and ownership. Ownership is associated with a license of use of the underlying asset. It does not transfer any copyright to the buyer but this depends mainly on the agreement between the two parties.
According to that, NFTs can have a variety of use-cases, such as:
- Digital art – the most common use, representing artistic creations and other collectables.
- Video games and virtual worlds – the second most popular use, representing assets that are available to players in-game.
- Music and other media – for example, a record or a movie that is tokenized.
- Supply chain – to verify the identity of a product.
There are many more use-cases, and the only restriction on their use is your imagination.
Why are Non-Fungible Tokens Important?
To tell you the truth, the most obvious benefit that a Non-Fungible Token offers is market efficiency. NFTs, as explained above, can be used in a variety of industries. One key advantage is that they cut out the middle-man. In the case of artworks, NFTs completely remove the agents and connect artists to their audience. When it comes to video games, NFTs can provide value to a player’s hours as they collect in-game items. From the standpoint of the supply chain, NFTs completely prevent actors from tampering with a product’s identity or otherwise interfering with the process.
Which blockchain solutions support NFTs?
One key question is about which blockchains actually support NFTs. The first key mover in this category was the Ethereum blockchain, which was linked to projects like Terra Virtua, Enjin, Decentraland and Axie Infinity from the Metaverse ecosystem, as well as artistic projects of the likes of Bored Ape Yacht Club and CryptoPunks.
That does not mean that Ethereum is the only platform that supports NFTs. An amazing move into the world of NFTs was recently made by the Solana blockchain. Featuring a distinguishably lower transaction fee (TX fee), Solana has an edge over Ethereum. While Solana’s metaverse is still a work in progress, its ecosystem supports projects like Degenerate Ape Academy, Aurory and SolPunks.
One of the most promising blockchain solutions that support NFTs is the Cardano ecosystem. The Cardano blockchain is the first solution to introduce a different narrative for NFTs called native tokens. The native tokens function enables the transacting of multi-assets on Cardano. This feature offers distinctive advantages, as there is no need to create smart contracts to handle custom tokens. A native token has all the advantages and safety of the Cardano blockchain. Cardano’s metaverse is still a work in progress, as the Smart Contract era went live in September 202. Even so, it already supports solid projects such as SpaceBudz, Clay Mates and Yummi Universe.
Last but not least, I cannot forget the blockchain solutions of VeChain, Tezos, Algorand, Ergo and many more that are not so popular yet but in my opinion will grow their ecosystems even more as we move forward.