What are NFTs? Non-fungible tokens (NFTs) are
special digital assets that can be collected, traded, or used in games and on
other platforms. They are distinguishable from one another due to their unique
attributes, such as having a limited supply, being owned by one person at a
time, or having custom artwork. One of the most popular NFTs today is
CryptoKitties, the blockchain-based digital cat collectibles that people trade
and breed with one another.
The background of Non-Fungible Tokens
Nowadays, Non-Fungible Tokens or NFTs are
receiving a lot of attention in discussions about digital art, virtual
currency, and blockchain technology. They are also becoming more popular among
developers creating blockchain games. However, when most people hear the term NFT
they have trouble distinguishing these unique tokens from other types of
cryptocurrency. This makes sense; each token isn’t a different type of coin but
rather each coin is equal to another one with it just being its piece on a
global ledger system called a blockchain.
The difference between fungible and non-fungible tokens
Fungible and non-fungible (or unique) tokens
are two different types of virtual currencies, or digital assets, that have
distinct properties. The most common type of token issued in today’s blockchain
applications is fungible tokens. These are ERC20 or ERC721 tokens that can be
freely exchanged on a secondary market like EtherDelta. While fungible tokens
can be exchanged for other fungible tokens there must exist a way to identify them
individually such as by serial number. Non-fungible or unique tokens do not
work in the same way because they usually represent some sort of special asset.
Examples might include physical property, collectibles, or other items that
cannot be divided into smaller amounts without losing their special properties.
An overview of NFT platforms
Blockchain offers new opportunities for
virtual currency, but there are many considerations to take into account. How
can we trust that a digital asset is secure and how do we keep it from being
duplicated or stolen? In general, platforms using blockchain technology like
CryptoKitties offer users a crypto token that is used on their platform to
purchase virtual items. These tokens are known as non-fungible tokens (NFTs).
non-fungible tokens differ from fungible tokens in several ways. First, they
are unique—each one has its ID number and properties. Second, they cannot be
broken down into smaller units; you can’t trade 1/2 of a CryptoKitty for
anything else because each one is unique. Third, these digital assets aren’t
interchangeable—one CryptoKitty isn’t worth two Ethereum coins—they have no
intrinsic value outside of what people will pay for them. That makes them very
different from traditional fiat currencies which have inherent value based on
supply and demand.
The potential applications for game developers
NFTs are essentially smart contracts in a
digital token format. That means game developers can have a lot of fun with
them, and utilize a ton of new features. There’s so much opportunity to
innovate that we’ve started to see different kinds of tokens being built on top
of Ethereum. There are already projects focusing on governance, prediction
markets, decentralized exchanges, and more. These application-specific tokens
(or app-tokens) offer interesting use cases but they also pose challenges for
both consumers and developers. Let’s look at some examples
How are cryptokitties made?
CryptoKitties take digital tokens and mint
them into physical assets. This allows Cryptokitties to be traded and sold
without relying on centralized exchanges. When you buy a cryptokitty, you own
that cryptokitty because you control its private key. You don’t trade your
cryptokitty for another user’s cryptokitty; instead, you simply transfer
ownership of your private key to someone else. There are no central exchanges
and there are no transaction fees when trading your kitties. As long as you
have a cat unlocked, anyone can come along and claim it. It’s like owning a
piece of art or rare collectible: once you sell it, you can never get it back.
If you lose your private key, then your cryptokitties are gone forever. Just
like any other digital token in Ethereum, if someone has access to your account
(or if they guessed or stole your password), they could take all of your
digital assets away from you in an instant. That's why we recommend storing all
important information offline in cold storage.
Real-world use cases
One of my favorite projects that are built on
top of all of these technologies is Cryptokitties. The website allows users to
purchase, collect, breed, and then trade virtual cats! Sounds like fun, right?
It is. And it also serves as a great example of how blockchain technology can
be used in a non-cryptocurrency-related application.