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Everything you Need to Know about NFTs!

What does “fungible” mean?

Before we get into the definition of a non-fungible token, it’s important to understand what fungibility all is about. A currency’s fungibility is used to qualify it for use. If the following conditions are met by an asset, it is said to be fungible:

  • It is not unique.
  • It can be swapped out with another asset of the same type if necessary.

The most revealing example is, of course, the various currencies that we use on a daily basis. As a result, dollars are considered fungible assets. In fact, a one-dollar note is not unique, and it can be exchanged for another one dollar note. If Alice gives Bob a one dollar note, Bob is free to lend Alice any other one dollar note at any time in the future.

Additionally, most cryptocurrencies are fungible or partially fungible assets, as is the case with most other financial assets. Because of this, each coin or token has the same value as its neighbors. Having said that, it is vital to understand that some cryptocurrencies are only partially fungible. Bitcoin (BTC), for example, is a partially fungible cryptocurrency due to the fact that its full transaction history is available to the public for viewing.

This indicates that the coins can be called one-of-a-kind because some of them have been used for unlawful trades, which distinguishes them from “virgin” coins. However, some of the coins have been used for legitimate exchanges. In theory, this may lead to a market in which “clean” components are preferred over components that are currently in use.

Anonymity is synonymous with absolute fungibility

So, the concept of absolute fungibility is synonymous with the concept of anonymity. In this case, each piece is strictly identical and not identifiable. Take, for example, privacy-oriented cryptocurrencies such as Monero (XMR) and Zcash (ZEC) (ZEC). Because we do not know what the components were intended to be used for, they all have the same legal standing.

Tokens that are truly fungible, such as Monero, on the other hand, are frequently targeted by regulatory authorities. The latter are wary of the anonymity provided by the anonymity layer, believing it to be conducive to money laundering.

What is a non-fungible token (NFT) and how does it work?

We can now return to the core of our discussion: what exactly is an NFT? Non-Fungible Tokens are distinct and easily distinguishable from one another. As a result, no two tokens created will be exactly identical and interchangeable; rather, each token will have specific features that distinguish it from the other.

Non fungible tokens (NFTs) are tokens that are comparable to those used by cryptocurrencies, but their values and features are variable, making them incompatible with the concept of money. They may be used to digitise a range of different types of information, and their data is kept on a distributed ledger called the blockchain. It’s as if each bitcoin had its own set of features and characteristics that distinguishes it from the other bitcoins on the market.

The history of non-fungible tokens

In the past, non-fungible tokens were created on the Ethereum blockchain. It was through the ERC 721 proposal that they were introduced, which serves as a standard for this form of token.

Creating non-fungible tokens is not confined to the Ethereum blockchain, although it is this blockchain that has been utilized almost exclusively for their production in the past few years. In addition, several sites, such as OpenSea, now allow you to develop NFTs for free and without the need for a lot of technical knowledge or experience.

Non-fungible tokens have a variety of applications and purposes.

As we previously indicated, non-fungible tokens, often known as NFTs, can be put to a variety of different uses. They’ve exploded in popularity as collectibles in the year 2021, but they’re not only restricted to that category. The following are some of the most significant sectors in which they are employed:

1. Blockchain video games

NFTs originally came to public attention in the gaming industry, specifically in the collectible game industry. CryptoKitties, of course, continues to be the “classic” game. The decentralized Ethereum application, which was launched in 2017, allows you to collect virtual cats in the same way that you would collect Pokémon cards. Each cat is actually an ERC-721 token, which is stored on the blockchain, freely exchangeable, and has its own value.

Other collectable card games followed, including games inspired by Magic: The Gathering and Hearthstone, among others. They provide you the ability to fight your cards while earning cryptocurrency rewards. Gods Unchained is one of the most well-known games available right now.

NFTs are also utilized in a variety of other games. In certain cases, they are intended to symbolise important objects, such as armour or weapons, which can be stored and exchanged freely by players.

2. Digital art and collectibles

It goes without saying that art and collections are the fields in which non-fungible tokens have made their mark. It is possible to store any digital object on the blockchain with an NFT, including images, GIFs, and videos, among others. This enabled artists to provide their work in the form of a non-fungible token, allowing them to reach a wider audience.

The Kings of Leon released the first non-traditional rock album in history in March 2021. Other musicians, such as Eminem, have provided non-fungible tokens representing significant moments in their careers. Naturally, digital artists are the ones who make the most use of this particular form of token. We might think of artists such as Beeple, whose paintings consistently command extravagant prices.

3. Memes and Internet Culture

Unsurprisingly, NFTs have also become entangled in the meme culture that has swept the internet. To the point that some cult memes have been tokenized and ripped off at a premium comparable to gold prices themselves. This resulted in a $473,000 sale of the non-fungible “Disaster Girl” token during the month of April in the year 2021.

The name Doge, which inspired the birth of Dogecoin (DOGE), was not exempt from the wrath of the internet. Its original meme was bought for $4 million, which was a record at the time.

4. Digital real estate and decentralised worlds are becoming increasingly popular.

The digital real estate industry can be found in the middle of the spectrum between video games and amusement parks. Projects such as Decentraland and The Sandbox provide users with 3D universes that contain plots. Everyone is free to purchase a parcel of land and then construct anything they like on it.

In the game, each plot is represented by a non-fungible token, which can be acquired with a cryptocurrency such as Ether (ETH) or Mana (MANA), among others. In the same way that “actual” real estate is priced differently depending on its appeal and location, plots are priced differently.

Conclusion

NFTs have applications that go beyond memes and trading cards, and they are not just for the news. Thus, its integration into bigger industries, such as decentralized finance (De-Fi), appears to be progressing in the correct direction.

Non-fungible tokens, like other components of blockchain technology, provide high levels of security, reduce the number of intermediaries, and enable the decentralisation of processes. As a result, they should continue to be preferred for a variety of applications.