- Non-fungible tokens (NFTs) are an important yet less understood aspect of the cryptocurrency ecosystem
- NFTs are indivisible tokens that can be traded like ordinary cryptocurrencies, but usually represent a digital artefact
- Artworks, in-game objects, and even real-world items can be represented by NFTs
Non-fungible tokens (NFTs) offer perhaps one of the most exciting real-world use cases for blockchain technology, yet so few people know what they are and what they can do. Our introductory guide to NFTs will get you up to speed with the essentials of what NFTs are, what you can do with them, and how you can get your hands on them.
Fungible or Non-fungible?
The first question on everyone’s mind when it comes to NFTs is ‘what on Earth does ‘fungible’ mean?’ Fungible essentially means divisible, meaning that NFT tokens cannot be divided and split up. This is in contrast to, say, Bitcoin, which can be split up into eighths, meaning you can buy between 1/8 of a bitcoin up to a whole bitcoin. You cannot buy fractions of an NFT – you can only buy the whole thing.
This ability to only buy the entire token makes NFTs perfectly suitable to digital artefacts or collectibles. For example, the burgeoning NFT art world has already seen hundreds of thousands of dollars spent on NFT art pieces, while soccer clubs are issuing player cards as collectible NFTs to fans.
Not Just a One Trick Pony
NFTs aren’t only for collectibles however. There is huge potential to use them in gaming, where they could represent in-game objects that could be purchased with tokens, or they could act as tickets to an event, or even represent a real-world asset. There are no limitations to how NFTs can be used, and with the ability to store ERC-721 tokens on any Ethereum-accepting wallet they are extremely easy to store.
Perhaps unsurprisingly, Ethereum has been the platform on which almost all NFTs have been issued to date. ERC-721 has been the primary standard for NFTs up until now, although the more recent ERC-1155 is taking a growing market share. Where ERC-721 requires a new smart contract to be written for each new class of token, ERC-1155 allows a single smart contract to govern an infinite number of tokens, which is one of its numerous advantages.
Where Can You Buy Them?
Like cryptocurrencies in general, NFTs tend to be bought through exchanges. There are a few specialized NFT exchanges in existence, with more expected as the ecosystem grows, and major exchanges are likely to have NFT arms before long. It is possible to exchange NFTs privately peer-to-peer, but this has the same inherent risks associated with a private cryptocurrency transaction.
NFTs Ready to Boom
NFTs have been slower to take off than other aspects of the cryptocurrency ecosystem, but with the token standards now firmly established, more marketplaces opening up, and the use case growing, it is only a matter of time before NFTs get the recognition that their potential deserves.