NFT Ultimate Guide (Non-Fungible Tokens)

NFT Ultimate Guide (Non-Fungible Tokens)

Table of Contents

Non-Fungible Tokens (NFT) are in a way the future of collectibles. They can represent just about anything, and one of the primary reasons why they are sought after by both individual traders, gamers, up to millionaires and celebrities is due to their scarcity as well as popularity. None of these tokens are the same, and each of them holds as much value as we give them. Some are rarer than others in terms of features, and this is what makes them more desirable. But what exactly are they and how do they work?

  • Non-Fungible Tokens are unique blockchain-based tokens that can represent anything.
  • They can bring a new dimension to digital interaction. 
  • They are transferable and sold on special marketplaces.
  • Their value depends on their uniqueness. 

Non-Fungible Tokens: An Explanation

When we discuss non-fungible tokens, we are discussing crypto assets that are indivisible and completely unique which can be used to represent tangible and intangible items. That may sound a bit confusing, so let us dive a bit deeper into it in order to see what this actually means.

You see, NFT tokens originally launched on the Ethereum blockchain as an ERC-721 token standard, and over time became available on a lot of other blockchains as-well, which gave them access to a lot more use-cases. These use-cases are in the form of digital collectibles, artworks, and in-game assets. 

Non-Fungible tokens contain information that is recorded in their smart contracts, and this piece of information is the unique aspect of each NFT token. These cannot be replaced by any other tokens. 

A better way to dive deeper into this and understand it is if we use Bitcoin as a point of comparison. Now, Bitcoin itself is a fungible token. This in turn leads us to the fact that you can easily send someone 1 BTC, and they can send you 1 BTC back. In any case, the BTC itself will remain the same. Now, since BTC is a volatile cryptocurrency, its value can change and shift over time, however, the currency itself remains Bitcoin throughout each and every transaction. Got that? Perfect, let’s carry on with NFT tokens. 

Non-Fungible tokens are not divisible. A good point of comparison here would be a plane ticket, but not in the way that you might think. You see, you can give your friend half of a plane ticket, right? And he has the ability to accept it, however, he cannot on-board the plane and travel to the specified location without having possession of both halves of the ticket, or in other words, he’d be missing half of it, as that is the only way it becomes valid. That being said, NFT is a unique asset.

The next step you need to take towards understanding NFT tokens is to analyze what fungibility actually means. Fungibility refers to the currency’s ability to maintain a standard value, as well as a uniform acceptance. This means that a currency’s history cannot affect its value, and this is due to the fact that each piece that is a part of the currency is equal in value to every other piece. Look at this from a different perspective. For example, imagine that I have a $10 bill next to me right now and that you have a $10 bill next to you. They both have the same worth. When a currency does not have fungibility, it is unstable and can collapse as a result of that. 

How Non-Fungible Tokens Work

Non-Fungible tokens or NFTs are unique and blockchain-based tokens that can represent anything out there, and this can be the case for physical assets as-well. They have been growing in terms of popularity throughout the years, and this is mainly due to the fact that they have the ability to tokenize anything, as well as provide a way to transfer ownership of digital assets to holders. You can even look at it from the point of view of it being a certificate of authenticity, and you would still not be far from the truth. 

Non-Fungible tokens can be perceived as a piece of art, no matter how unique this sounds to you as a concept, as they are associated with the power of their creative expression that can be set in a tangible medium. 

When you eventually do decide to purchase an NFT token through the usage of fiat currency or simply through the usage of cryptocurrency, you are essentially buying the unique token as well as the work of art that is connected to it. This transaction is then registered on the blockchain and provides a record of the purchase, as well as proof that you have ownership over it.



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NFT tokens have characteristics that are specific to them, and these include the fact that they are non-interoperable, indivisible, indestructible, and verifiable. 

All of the NFT data is stored on the blockchain through the usage of smart contracts, which means that neither one of the tokens can be destroyed, removed, or replicated in any way. The ownership of these tokens is immutable. These items can also be traced back to their original creator as-well. 

Examples of Non-Fungible Tokens 

Now that you have a hopefully much clearer understanding of how non-fungible tokens work, let’s look at some examples so you can get an in-depth look at how all of that actually looks like when properly implemented. 

Non-Fungible tokens are essentially blockchain access that is designed with the intention of being unequal. They can work as a database entry for just about any type of good. 

CryptoKitties

CryptoKitties NFT
Source: CryptoKitties – Furry Collectibles

The first example we will be looking at is a project known as CryptoKitties. CryptoKitties is by far one of the most well-known and popular implementations of Non-Fungible Tokens. It is a blockchain game on Ethereum that was released in the year 2017, developed by the Dapper Labs studio. This was truly a unique game at the time due to the fact that it gave its players the ability to purchase, collect, breed, and even sell virtual cats. 

Now, once this game managed to finally release, thousands of CryptoKitties emerged, with the concept behind them being that not any single one of them is equal, and each one of them is unique in certain aspects. These aspects include the fact that they have unique names, facial features, body features, think in terms of eye color, fur color, expression, and you will slowly start building your concept around how these are NFT tokens. 

When you purchase a CryptoKitty, you are essentially buying ownership of a non-fungible token that corresponds to the kitty in question. Keep in mind that, some kitties might be a lot more valuable than others. 

Every time you send someone a kitty, and they send a kitty back to you, each time it will be a different kitty from the one you originally sent to them. The unique information of the non-fungible tokens is stored in the smart contract and is immutably recorded on the blockchain.

Because of this, no NFT token can be replaced or swapped by another token, as none are alike, even if they have the same value associated with them.

Now, while CryptoKitties takes advantage of non-fungible tokens and brings them to light as collectibles, they can have other uses as well. They can be used for digital assets that require to be differentiated from one another in order to prove their value and scarcity. They represent ownership licenses. These tokens are also not traded on standard cryptocurrency exchanges and are sold in digital marketplaces instead. 

Now, what you might specifically find interesting in about Non-Fungible tokens is the fact that they have found their home in online gaming.

The chances are high that you have played at least one video-game throughout your lifetime, thin along the lines of mobile games as-well. Now, in these games, players have the ability to acquire weapons, as well as clothing, and even some specific items that are collectibles within the game. Now, if these are non-fungible tokens, they could both be traded in-game, and in the real-world through cash-outs on the digital marketplaces. The online digital economy when it comes to fictionalized goods has a lot of potentials.

Decentraland

Decentraland - Ethereum Virtual Reality
Source: Decentraland – Ethereum Virtual Reality

Now we will be looking at Decentraland, which is a project ahead of its time, with a truly unique in-game blockchain economy.

Decentraland is a virtual reality experience that is powered by Ethereum. It offers a virtual world where you have the ability to purchase land, and you can, later on, explore this land and build upon it. In other words, within this virtual world, you can build and monetize on it, and there is no limit as to what you can make. It is one of the first-ever digital platforms that is owned by the users, and not by a corporation. The non-fungible asset in the game is known as LAND, and this is the space that you can interact with, within the game.

Once you get this plot of land, you can do whatever you want to it, and this can be the creation of games, applications, a re-creation of your favorite movie scenes for example, or even the creation of educational content. The amount of land is capped and each plot of land has 33 feet x 33 feet of space, with infinite height. 

Now, this system uses a decentralized token, and this token is known as MANA.

MANA is an ERC-20 token that can be used in order to purchase LAND, and it also provides you with an opportunity to pay for in-game goods and services.

CryptoPunks

CryptoPunks - Collectible NFT Characters on the Ethereum Blockchain
Source: CryptoPunks – Collectible Characters on the Ethereum Blockchain

We cannot talk about NFT tokens without discussing CryptoPunks. It was released on June of 2017 as one of the first non-fungible tokens on the Ethereum platform. The project was developed by Larva Labs, which consisted of only two people. These people were John Watkinson and Matt Hall.

Now, CryptoPunks is essentially 10.000 unique collectible characters that include proof of ownership that is stored on the Ethereum blockchain, and at the time of writing, has a total value across all of its lifetime sales at 90 million USD. They are all made digitally scarce through the usage of blockchain technology, and each one of them is generated through the usage of an algorithm, and as such, no two will ever be exactly alike. 

However, there are certain ones that have traits that are rarer than others. They were originally released at no cost and could easily be claimed by just about anyone with an Ethereum wallet, and there will never be more than 10.000 CrytpoPunks. 

As such, NFT tokens are also showcasing a similar pattern.  This can specifically be seen with collectibles such as CryptoPunks, which has 10.000 unique collectible characters. Punk 4156 sold for 650 ETH. This roughly translates to 1.2 million USD.

In the offline/centralized world, you might have met your fair share of collectors throughout your lifetime. It was thought ridiculous when people managed to sell their Pokémon or Magic: The Gathering card collections for hundreds of thousands of dollars online, however, that is the world we live in. 

Thanks to the Ethereum blockchain, many artists as well as gaming companies or generally just about any content creator out there can utilize the token standards that create uniquely distinguishable assets. Now, keep in mind that around 2017, CryptoKitties accounted for 95% of the Ethereum network usage when it was popular. 

As such, the estimated total value of Crypto Art has surpassed $100 million. 

Crypto Art Data NFT
Source: Crypto Art – Total NFT Crypto Art Value in ETH

Non-Fungible Token Platforms

When it comes to purchasing NFT tokens, you can do so on Nifty Gateway, Rarible, Opensea, Foundation, Zora, and Superrare. 

At the time of writing, the best selling non-fungible tokens based by quantity, cryptocurrency and USD value include:

  • CryptoPunks
  • Sorare
  • Art Blocks
  • Ha Shma Sks
  • Superrare
  • Makersplace
  • The Sandbox
  • Decentraland
  • Axie Infinity
  • Chainfaces

Why NFT Crypto Collectibles Have Value

Now, if we review Google Trends when it comes to the keyword NFTs, we can come to the conclusion that it has skyrocketed in popularity. 

Google Trends - Keyword NFTs
Source: Google Trends – Keyword NFTs

Non-Fungible tokens can truly revolutionize the way we live our everyday lives, and what we do in front of our computers. If you can go out there and do something that is valuable to you and brings you to value, why would you do something where there is no value. 

Now, at this point, you may have analyzed everything and realized that people are paying hundreds of thousands of dollars for NFT tokens. Remember the previous examples from above? What If we told you that CryptoKitties generates $433.000 in sales per week, and CryptoPunk generated $45.2 million throughout the past week? Celebrities such as Mark Cuban are also jumping in on the digital collectible bandwagon and fully supporting NFT tokens.

Additional NFT Facts

The main advantage you have of owning a digital collectible is the fact that each and every NFT contains information that is distinguishable. This makes the creation as well as the circulation of fake collectibles irrelevant, as each of them can be traced back to the original creator. NFT tokens cannot really be directly exchanged between two people, due to the fact that none of them are equal. 

Many of the NFT tokens were built on two Ethereum token standards, including:

  • ERC-721
  • ERC-1155

These can be seen as blueprints that are created by Ethereum which enable the software developers to be able to easily deploy NFT tokens as well as ensure that they are compatible with the entire ecosystem.

Supply, as well as demand, are the key market drivers for the price of these tokens, and due to their scarce nature, and the high demand for them from gamers, as well as investors and especially collectors, many people are prepared to really dish out the big bucks for acquiring them. There have been cases where these NFT tokens have made people a lot of money. If we turn back to the previous example of Decentraland, a player managed to purchase 64 lots and combine them into an estate, which sold for $80.000 due to the desirable location. This location is known as The Secret of Satoshi’s Tea Garden.

Decentraland - NFT Real Estate
Source: Decentraland – NFT Real Estate

On the plus side, NFTs represent our future as a collectible-oriented ecosystem that can expand the digital resource economy. A means through which users can prove ownership of goods through unique digital tokens that are recorded on the blockchain itself. 

Now, when it comes to the future of NFT tokens, we cannot really conclude what the future holds. The potential of the market is huge, however, a lot of it will depend on the evolution as well as the success of VR and AR gaming, investor interest, and reliable stability of pricing. Another thing we can hopefully look forward to is a dedicated NFT blockchain that powers the expanding ecosystems. The bad side of NFT tokens is the fact that they are yet to prove that they can hold value, and remain highly illiquid as a result. If you want to buy an NFT, it’s a straightforward process, but selling it requires finding a buyer who is interested in something like it, which can be rare and difficult. 



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