Non-Fungible Tokens (NFT)
Introduction
What are NFTs?
A blockchain is a network of computers that enforces common rules governing how data is shared within that network.
We generally call this data cryptocurrency, because its essential properties – scarcity, durability, portability, divisibility and fungibility – enable it to be used as a money. But not all crypto assets need to have all of these properties.
In fact, there are crypto assets that behave differently and offer different opportunities for traders and investors called Non-Fungible Tokens (NFTs). NFTs are unique cryptographic tokens, which, like cryptocurrencies, can be bought, sold and exchanged over the internet without middlemen.
Like other crypto assets, they are immutable, resistant to theft, impossible to forge and easily trackable. However, they differ in that they cannot be replaced by something identical.
While one bitcoin can be traded for any other bitcoin without the user noticing a difference, NFTs are unique and, instead, function like trading cards or collectables. They can be purchased, stored, exchanged and sold, too, but each NFT accrues value independently.
NFTs could potentially represent anything from digital trading cards to in-game items to real estate, and they offer another way for investors to allocate and build wealth in the crypto world.
Below we break down how they work and why they might be a compelling addition to your crypto asset portfolio.
How do NFTs work?
First, it’s important to note that not every blockchain can support NFTs.
NFTs differ from traditional cryptocurrencies in that they are indivisible, rare or unique, which means that a blockchain needs to enable its users to create unique tokens to offer them. Further, most blockchains that support NFTs are also powered by a cryptocurrency, which is designed to serve as the medium of exchange for the purchase of NFTs within that ecosystem.
NFTs on Ethereum
The first and most popular interface for creating NFTs is the ERC-721 standard, which allows for the issuance and trading of tokens on the Ethereum blockchain.
Ethereum allows developers to program smart contracts for their NFTs, which can be made to contain details about the new assets they create. When a user exchanges an NFT, they are interacting with this contract, which tracks it on Ethereum.
This means that the creator of the NFT can make a number of decisions that could influence the value of his, her or their creation, such as specifying how rare an item will be.
In this way, an NFT representing a trading card can be made to have many of the special and unique characteristics that you get with a physical card, helping set the market price for it.
NFTs on other Blockchains
Ethereum isn’t the only option developers have for creating and launching NFTs.
Chief among its competitors may be Flow, a newer blockchain designed specifically for NFTs, and whose goal is to popularize the application of these tokens.
Other blockchains that enable the creation of NFTs include Cosmos, Polkadot and Tezos.
NFTs Standards
ERC721
ERC721 was the first standard for representing Non-Fungible Tokens digital assets. ERC721 is an inheritable Solidity smart contract standard. ERC721 provides a mapping of unique identifier addresses, which represent the owner of that identifier. ERC721 also provides a permissioned way to transfer these assets.
ERC1155
ERC1155, pioneered by the Enjin team, brings the idea of semi-fungibility to the NFT world. With ERC1155, IDs represent not single assets but classes of assets. The key factor of ERC1155 is its transferable nature. Users need not to select the token address every time to purchase multiple assets of the same type, eg : A virtual asset in games. Instead, the user has to enter the quantity of the asset with the representation of the Id. This reduces multiple smart contracts and transaction time.
Functionalities of NFTs
– Non-Fungible Tokens (NFTs) can be used for digital assets that are unique.
– NFT represents and provides digital acceptance to the digital for tangible and intangible assets.
– NFTs cannot be exchanged. Each NFT is different from other NFT, which possess its unique specifications.
– NFTs cannot be purchased in exchange markets for their unexchangeable nature. They can be created, purchased, and traded in their market places.
Characteristics of NFTs
– NFTs can be created on contract-enabled blockchains with Non-Fungible Tokens tools and support.
– Ethereum standard ERC721 protocol is common for NFTs.
– NFTs and their smart contracts allow for detailed information to be added, like the owner’s identity, etc.
– NFTs provide proof of digital ownership of an asset in the digital world, like shares and real estate assets.
Features Accumulated by ERC721 Token Development
– Non-interoperable: NFTs are non-interchangeable and non-interoperable. An NFT from one work cannot be used in other works.
– Indivisible: NFTs cannot be divided into smaller denominations due to their unique protocol specifications.
– Recoverable: NFTs are indestructible as their data is stored in the blockchain via smart contract. Each transaction can be tracked back and recovered from the chain.
– Verifiable: NFT stores the ownership data on the blockchain. That enables verification of creators without third-party authentication.