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A non-fungible token (NFT) is a special type of cryptographic token which represents something unique. NFTs are called non-fungible because they are not mutually interchangeable, since they contain unique information, although it is possible to mint any number of NFTs representing the same object. This is in contrast to cryptocurrencies like bitcoin, and many network or utility tokens, that are fungible in nature.

Applications

Non-fungible tokens are used to create verifiable artificial scarcity in the digital domain, as well as digital ownership, and the possibility of asset interoperability across multiple platforms. NFTs are used in several specific applications that require unique digital items like crypto art, digital collectibles, and online gaming.

Art was an early use case for NFTs, and blockchain technology in general, because of the purported ability of NFTs to provide proof of authenticity and ownership of digital art, a medium that designed for ease of mass reproduction, and unauthorized distribution through the Internet.

NFTs can also be used to represent in-game assets which are controlled by the user instead of the game developer. NFTs allow assets to be traded on third-party marketplaces without permission from the game developer.

Growth

In June 2017 CryptoPunks were released as the first non-fungible tokens on the Ethereum blockchain by American studio Larva Labs, a two-person team consisting of Matt Hall and John Watkinson. In late 2017 another project called CryptoKitties was released and went viral and subsequently raised a $12.5 million investment.

In 2018, RareBits, an NFT marketplace and exchange, raised a $6 million investment. Gamedex, a collectible cards game platform made possible by NFTs, raised a $800,000 seed round. Decentraland, a blockchain-based virtual world, raised $26 million in an initial coin offering, and had a $20 million internal economy as of September 2018. As of 2019, Nike holds a patent for its blockchain-based NFT-sneakers called ‘CryptoKicks’.

Dapper Labs, in partnership with the NBA, launched a beta version of their NBA TopShot collectable and tradable NFT-based app in the first half of 2020, which they had been working on since 2018. It sells tokens in packs which they say contain multimedia and data smashed together. On October 1, 2020, it was announced that they had exited the beta and opened to all fans. As of February 28, 2021, Dapper Labs was reporting over $230 million in gross sales in the app.

In February 2021, the musician Grimes sold around $6 million worth of tokens representing digital art on Nifty Gateway. Later in February, an NFT representing the meme animation Nyan Cat was sold on an internet market place for just under US$600,000. A few days later, American digital artist Beeple's work "Everydays: The First 5000 Days" was the first NFT of an artwork to be listed at prominent auction house Christie's.

The first NFT to enter auction representing a full album is Whale Shark by Clarian North, which was released on March 4, 2021. Kings of Leon's album When You See Yourself, released on March 5, 2021, had been planned to be the first musical album sold with NFT tokens.

Blockchain token standards

Specific token standards have been created to support the use of a blockchain in gaming. These include the Ethereum ERC-721 standard of CryptoKitties, and the more recent ERC-1155 standard. Token standards also exist on other blockchains that support NFT like Bitcoin Cash and FLOW blockchain.

ERC-721 Non-Fungible Token Standard

ERC-721 was the first standard for representing non-fungible digital assets on the Ethereum blockchain. ERC-721 is an inheritable Solidity smart contract standard, meaning that developers can easily create new ERC-721-compliant contracts by importing it from the OpenZeppelin library.

ERC-1155 Multi Token Standard

ERC-1155 brings the idea of "semi-fungibility" to the NFT world, as well as providing a superset of ERC-721 functionality (meaning that an ERC-721 asset could be built using ERC-1155).

Bitcoin Cash SLP NFT Token Standard

"NFT1" was introduced onto the Bitcoin Cash blockchain in 2019 as part of the SLP token structure. You can use the protocol to support non-fungible tokens by minting a non-divisible token supply of 1 without a minting baton, called a simple NFT. The specification codifies a more capable type of NFT that allows grouping of many NFTs together, called NFT1.

FLOW NFT Token Standard

On the FLOW blockchain, Cadence represents each NFT as a resource object that users store in their accounts. Resources have important ownership rules that are enforced by the type system. They can only have one owner, cannot be copied, and cannot be accidentally or maliciously lost or duplicated. These protections ensure that owners know that their NFT is safe and can represent an asset that has real value.

Further reading

• The Story Behind Hashmasks: Ethereum’s Greatest Art Sale

Notes

1. Network tokens are used to identify and validate payments over card networks, made with a specific merchant. Utility tokens are a type of cryptocurrency that represent access or discount to a product or service.

References

1. Merriam Webster Definition
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19. Kastrenakes, Jacob (2021-03-01). "Grimes sold $6 million worth of digital art as NFTs". The Verge. Retrieved 2021-03-04.
20. "Why an Animated Flying Cat With a Pop-Tart Body Sold for Almost $600,000". NY Times. 2021-02-25. Retrieved 2021-02-28.
21. https://www.christies.com/features/Monumental-collage-by-Beeple-is-first-purely-digital-artwork-NFT-to-come-to-auction-11510-7.aspx?sc_lang=en&lid=1
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23. Robin Murray (March 5, 2021) Wait. Did Clarian Beat Kings Of Leon's NFT Record? Clash Magazine.
24. Samantha Hissong (March 3, 2021). "Kings of Leon Will Be the First Band to Release an Album as an NFT". Rolling Stone.
25. "NFT meaning explained as Kings of Leon offer music industry first". Newsweek. 2021-03-05. Retrieved 2021-03-09.
26. Volpicelli, Gian (24 February 2021). "The bitcoin elite are spending millions on collectable memes". Wired UK.
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29. "EIP-721: ERC-721 Non-Fungible Token Standard". Ethereum Improvement Proposals. Retrieved 2021-02-28.
30. "EIP-1155: ERC-1155 Multi Token Standard". Ethereum Improvement Proposals. Retrieved 2021-02-28.
31. "NFT1 Specification". Bitcoin Cash Specification. 2019-07-11. Retrieved 2021-03-10.
32. "FLOW Non-Fungible Tokens". FLOW NFT Specification. 2021-03-04. Retrieved 2021-03-10.

External links

• ERC-721 Standard
• NFT explained in Simple Terms

• Blockchain games
• Cryptocurrencies
• Ethereum