NFT Basics


<h2>What is Fungibility?</h2>



<p>Before you can define <a href="https://nonfungible.com/blog/why-most-definitions-of-non-fungible-are-incorrect" target="_blank" rel="noreferrer noopener">&#8216;non-fungible&#8217;</a>, you must have an understanding of what &#8216;fungible&#8217; means on its own. </p>



<p><a href="https://www.collinsdictionary.com/dictionary/english/fungible" target="_blank" rel="noreferrer noopener">Collins</a>’ dictionary defines ‘fungible’ as:</p>



<blockquote class="wp-block-quote"><p>“being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind”</p></blockquote>



<p>There are two parts to keep in mind here:</p>



<ol><li>The exchange of the same nature or species.&nbsp;</li><li>Whether it is exchangeable or replaceable in part or in whole. For example, it is possible to exchange a one-liter bottle of water for another. Same nature, same specie, same quantity.</li></ol>



<p>On the other hand, exchanging one thing for another will not always ensure the same exchange value. One euro coming from the Vatican won’t have the same value as one euro coming from France. A Bitcoin freshly mined from a new block won’t have the same history as a Bitcoin that has been used on a Darkweb marketplace. The fungibility of an asset is therefore defined according to its uses.</p>



<h2>Definition of Non-Fungible Tokens</h2>



<p>Non-Fungible Tokens (NFTs) are cryptographic assets on the Blockchain that are distinguished from each other with unique identification codes and metadata.&nbsp;</p>



<p>In 2021, <a href="https://www.collinsdictionary.com/dictionary/english/nft" target="_blank" rel="noreferrer noopener">Collins</a> added the word to his dictionary, here’s their definition:</p>



<blockquote class="wp-block-quote"><p>A unique digital certificate, registered in a blockchain, that is used to record ownership of an asset such as an artwork or a collectible</p></blockquote>



<p>A non-fungible token is NOT fungible. It is a token that represents a unique asset with characteristics that are particular to it: it cannot be interchanged or replaced by another equivalent token.</p>



<p>NFTs can take the form of digital work, a virtual land, a domain name, or even equipment in a video game.</p>



<p>NFTs are simply a technological medium that allows any digital item to be stored and circulated virtually on a blockchain. To some extent, NFTs can be compared with computer files in the sense that their type and usage can be extremely varied.</p>



<h2>NFTs to Preserve the Uniqueness and Authenticity of a Creation</h2>



<p>Have you seen Pokemon cards? There are many basic Pokemon cards as well as rare cards. A rare card is much more valuable than a basic card and owning one used to be a big deal and came with a heavy price tag. It could also be stolen!&nbsp;</p>



<p>In this tech age, everything has gone digital. If there was a special digital card, it could be easily duplicated by copying and pasting. So how can the uniqueness and authenticity of a special digital card be preserved?&nbsp;Non-fungible tokens are the answer.</p>



<p>Any digital property can be the ‘special digital card’ that’s transformed into a non-fungible token. As a result, it will be possible to identify the original card as unique due to being recorded on the blockchain. Now, it is possible to have special cards and art pieces thanks to the non-fungible tokens and blockchain.</p>



<h2>Characteristics of Non-Fungible Tokens</h2>



<p>Here are the unique qualities of non-fungible tokens that differentiate them from other tokens:</p>



<ul><li><strong>Rare:</strong> Although the developers of non-fungible tokens can create as many tokens as they want, they often keep the supply of NFT limited so that they can be scarce to increase their value.</li><li><strong>Indivisible:</strong> Although this is not the case with all Non-Fungible Tokens, they are often indivisible. In most cases you cannot split Non-fungible tokens in half, and therefore you will have to buy the full Token.&nbsp;</li><li><strong>Unique:</strong>&nbsp;This is the most highlighted feature of non-fungible tokens. There is a record of their uniqueness on a permanent information tab. This tab is like a certificate of authentication.&nbsp;</li></ul>



<h2>Examples of NFT Usages</h2>



<p>Let&#8217;s take a closer look at how NFTs can be used. In <a href="https://nonfungible.com/academy/nft?unit=nft-applications" target="_blank" rel="noreferrer noopener">NFT Applications</a>, we will review these different NFT segments in more detail.</p>



<ul><li><strong>Video games</strong>: NFTs can be used in several ways in video games. In first-person shooter (FPS) games, they can take the form of skins for weapons or avatars. For role-playing games (RPGs), these NFTs can take the form of equipment such as weapons or armor as well as some mounts (pets). For card games (trading card games), NFTs can be the cards themselves and also the personalization of their terrain or the back of the cards.</li><li><strong>Digital art</strong>: Online, everything is infinitely duplicable. With NFTs, it has become possible to quantify the unquantifiable. Digital art, which requires many hours of work, can therefore be valued at higher levels closer to physical art. In addition, you can publicly verify the address of a wallet linked to an artist&#8217;s profile. The artist&#8217;s signature is therefore included in the NFT mint.</li><li><strong>Collectibles</strong>: Digital collectibles can take many forms, yet all exist for the same purpose: to be collected. Initially, a so-called &#8216;collectibles&#8217; project has no other purpose than to be collected. This doesn’t mean that all collectibles will remain solely collectibles over time. The creators of collectible products often plan for them to be utilized in other areas such as in video games, or to act as a token to gain entry to a club or otherwise reward users.&nbsp;</li><li><strong>Virtual land/metaverse</strong>: Virtual worlds are becoming more present in our lives. Whether as a means to organize an online art exhibition or play a massive multiplayer video game, NFTs can be used to represent plots of land on which it is possible to construct buildings or organize events.</li><li><strong>Utility</strong>: There are use cases of NFTs that focus on utility. Tickets for an event, decentralized domain names to facilitate transactions, diplomas&#8230; Not all of them have speculative value on a secondary market, but they do have a well-defined utility from the outset.</li></ul>



<p>On our website, you can <a href="https://nonfungible.com/market-tracker" target="_blank" rel="noreferrer noopener"><strong>Explore the Market Tracker</strong></a> to view the activity for each one of these segments!</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Non-Fungible Tokens (NFTs) are cryptographic assets on the blockchain that are distinguished from each other with unique identification codes and metadata.

What Is a Non-Fungible Token (NFT)?


<p>Depending on the use, the fungibility of an asset may have several nuances. As seen previously in the chapter ‘<a href="https://nonfungible.com/academy/nft/what-is-an-nft">What is an NFT</a>’, there is a difference between a fungible asset and a non-fungible asset. Now, we would like to introduce the third type, &#8216;semi-fungible tokens&#8217;. Semi-Fungible Tokens (SFT) are intended to be mass-produced and consumed while keeping an identity of their own. Initially designed for video games, the concept of the SFT was created by <a href="https://enjin.io/" target="_blank" rel="noreferrer noopener">Enjin</a> when they offered the ERC-1155 standard on Ethereum.</p>



<p>To fully imagine how an SFT can be used, here are several use cases:</p>



<ul><li>Cinema or concert tickets. Each token has information related to the date, time, and nature of the event. But it is not intended to be kept for a long time or traded on a secondary market.</li><li>A chest obtained in a video game. Once opened, the chest (ERC-1155) disappears to give the player epic armor (ERC-721) and gold coin rewards (ERC-20).</li></ul>



<p>Depending on the needs, NFTs won’t always be the type of assets used and semi-fungible tokens might be preferred. Thanks to the ERC-1155 standard, an SFT makes it possible to distribute fungible and non-fungible assets within the same token.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Thanks to the ERC-1155 standard, a semi-fungible token makes it possible to distribute fungible and non-fungible assets within the same token.

What Is a Semi-Fungible Token?


<p>The <a href="https://nonfungible.com/news/game/non-fungible-on-bitcoin" target="_blank" rel="noreferrer noopener">creation of NFTs on the blockchain</a> dates back to 2013 with Colored Coins. The concept was simple: each token represented land or different types of metal. It is the first kind of NFT with use cases in the real world.&nbsp;NFTs experiments then multiplied over the years.&nbsp;</p>



<p>Thanks to the <a href="https://counterparty.io/" target="_blank" rel="noreferrer noopener">Counterparty</a> platform on Bitcoin in 2014, the <em>Spell of Genesis</em> game was able to release its first cards in 2015. In 2016, the trading card game <em>Force of Will</em> managed to climb to 4th place on the sales podium behind <em>Magic: The Gathering</em>, <em>Pokemon,</em> and <em>Yu-Gi-Oh</em> in North America. In 2017, it was on Ethereum that CryptoPunks made its airdrop while Decentraland began working on its metaverse. Dapper Labs participated in the creation of the NFTs standard on Ethereum with CryptoKitties.</p>



<p>It was not until mid-2018, that the ERC-721 standard was created on Ethereum and allowed users to mint and use NFT on this blockchain.&nbsp;Since then many projects have been added to the history of NFT on Ethereum. Several metaverses like <a href="https://nonfungible.com/market-tracker/thesandbox" target="_blank" rel="noreferrer noopener">The Sandbox</a> and&nbsp; <a href="https://nonfungible.com/market-tracker/cryptovoxels" target="_blank" rel="noreferrer noopener">Voxels</a> have been developed. Artistic marketplaces like <a href="https://nonfungible.com/market-tracker/superrare" target="_blank" rel="noreferrer noopener">SuperRare</a> and <a href="https://nonfungible.com/market-tracker/knownorigin" target="_blank" rel="noreferrer noopener">Known Origin</a> have appeared alongside video games such as <a href="https://nonfungible.com/market-tracker/godsunchained" target="_blank" rel="noreferrer noopener">Gods Unchained</a> and <a href="https://nonfungible.com/market-tracker/axieinfinity" target="_blank" rel="noreferrer noopener">Axie Infinity</a>.</p>



<p>In addition to these different projects, specialized NFT blockchains have emerged including <a href="https://nonfungible.com/news/opinions/what-is-wax-ev" target="_blank" rel="noreferrer noopener">WAX</a>, <a href="https://explorer.roninchain.com/" target="_blank" rel="noreferrer noopener">Ronin</a>, and <a href="https://flow.com/" target="_blank" rel="noreferrer noopener">Flow</a>. What’s more, several side chains have been adopted as a means to escape the gas fee associated with Ethereum.</p>



<p>In 2021, a very significant number of brands, licenses, and celebrities bought and promoted NFTs. Many large-scale projects have been announced as well as partnerships. For example, Nike bought the virtual wearable studio RTFKT and Coca-Cola built its building in Decentraland. We invite you to read our article about <a href="https://nonfungible.com/news/utility/the-history-of-nfts-on-ethereum" target="_blank" rel="noreferrer noopener">The full history of NFT on Ethereum</a> if you want to know more about this topic!</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Non-Fungible Tokens (NFTs) are cryptographic assets on the Blockchain that are distinguished from each other with unique identification codes and metadata.

Short History of NFTs


<p>We live in a digital age where any media can be duplicated endlessly. But some digital content such as diplomas, works of art or concert tickets can also be falsified. Where there is a trust issue in knowing the provenance and authenticity of a digital asset, NFTs can be used to solve the problem. Here are some of the reasons why non-fungible tokens are important.</p>



<h2>NFTs as Verification of Authenticity&nbsp;</h2>



<p>A common mistake is to think <a href="https://nonfungible.com/news/art/the-art-of-copyright-on-the-blockchain" target="_blank" rel="noreferrer noopener">NFTs are acting as a copyright</a>. This isn’t the case, if an image is under copyright and is minted as an NFT by someone else, this is an infringement and the NFT can be delisted from the marketplace where it was minted.&nbsp; NFTs don’t replace rights surrounding an artwork but allow to identify the NFT creator and the current owner very easily thanks to blockchain.&nbsp;</p>



<p>The verification of authenticity is a sensitive issue when it comes to non-fungible goods such as paintings, collectibles, and the like.. It is difficult to verify authenticity without counting on experts.&nbsp;</p>



<p>In the case of digital art, for example, it is easy to create copies and claim the work as one&#8217;s own. There is no way to verify that a digital image is original. This is where NFTs are important. NFTs are used to attest the authenticity and rarity of an artwork.&nbsp;</p>



<p>NFTs originate as smart contracts to store and record unique information on the blockchain, which means that each time an NFT is created, only one of it exists. In other words, its authentication is validated thanks to the blockchain which gives it its first value by itself.</p>



<p>Thus, NFTs allow you to certify that a digital asset is authentic. For example, you can easily find out when an asset was created and then sold. You can then view the history of previous owners. This way, NFTs mitigate problems such as fraud and plagiarism.</p>



<h2>NFTs as a New Revenue Source for Artists</h2>



<p>Artists and creators can now craft their work as digitally native NFTs and directly receive revenues from their fans with less friction. Auction houses typically charge commissions of up to 20-30%. Thanks to NFTs, artists do not need intermediaries like auction houses, art galleries, and agents to market and sell their work. They only have to <a href="https://nonfungible.com/news/art/nft-art-where-to-begin" target="_blank" rel="noreferrer noopener">upload their NFTs artworks on blockchain art marketplaces</a>.</p>



<p>Artists can now earn their fair share based on what collectors are willing to pay. In addition, they no longer pay the price for distribution and publishing.</p>



<p>NFTs have also given artists something else: the ability to sell fractions of an NFT. Platforms like <a href="https://fractional.art/" target="_blank" rel="noreferrer noopener">Fractional.art</a> allow you to &#8220;cut&#8221; a work into thousands of NFTs so that more people can access the possession of a well-known work of art. Not only does what was previously accessible to an elite become open to all, but it also makes the estimation of the price of the work in a community way.</p>



<p>NFTs have opened up the digital art sector because of their ability to protect property rights. They facilitate traceability of origin, which plays a significant role in determining the value of art.</p>



<h2>Cross-Project Compatibility (Interoperability)</h2>



<p>Imagine a world where all NFTs, whether from a video game or a marketplace, are accessible in one place. This world is called a metaverse, a virtual environment where you can walk around and socialize with your friends, go to concerts, meet colleagues in a shared office, or visit shops.</p>



<p>NFTs are the cornerstone of these virtual realities deployed on the blockchain. Due to their unique attributes, NFTs quantify what was previously unquantifiable.&nbsp;</p>



<p>Just as blockchain interoperability allows users to easily exchange tokens and assets from different blockchains in a matter of moments, it will soon be possible to have interoperability between non-fungible tokens (NFT). For example, if your avatar is an NFT and holds some NFT equipment in a video game, this same avatar could be used in several games while keeping and using this same equipment.&nbsp;</p>



<p>If tomorrow the administrative services of the whole world were accessible from a single shared virtual world, it would be necessary to have one compatibility standard so that a ‘Metaverse identity card’ would be recognizable by all.</p>



<p>However, a major problem remains to be solved: decompartmentalizing the many autonomous worlds and enabling their complete interoperability.</p>


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<p class="has-text-align-center">This work is licensed under a <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noreferrer noopener">Creative Commons Attribution 4.0 International License</a>.</p>


Where there is a trust issue in knowing the provenance and authenticity of a digital asset, NFTs can be used to solve the problem.

Why are Non-Fungible Tokens Important?

Non-Fungible Tokens (NFTs), being certificates of authenticity, can be used to prove the ownership of any digital asset: concert tickets, video game items, artworks, or even digital properties. This section will help you to understand and explore the different ways you can use NFTs.

NFT Basics

Short History of NFTs

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