What are Non-Fungible Token and how do they work?

You may have heard of Non-Fungible Token, but what is it? Is it equivalent to a unique and irreplaceable work of art? Non-convertible tokens, or NFT (Non-Fungible Token ), among other things, are contributing to the development of digital art, becoming a new way to invest in art or digital assets such as GIFs and tweets. In fact, tweets from famous people are already up for auction. In addition, the application in the financial field of irreplaceable tokens makes them indispensable in the crypto industry.

In 2020, the market for non-fungible tokens (NFT) grew by almost 300% , three times its size in 2019. Currently, operations involving NFTs exceed US $ 300 million in transaction volume. A recent study carried out by NonFungible.com shows us a great growth of this market with the necessary conditions to become the leading category of digital assets in the virtual economy. But what are non-fungible tokens (NFTs) really and how do they work?

What are Non-Fungible Token?

In order to explain what a non-fungible token (TNF) is, or (NFT) according to its use in English, we must first break down the term to help us better understand what it is about. Token , “symbolic (a)” is an individual unit created by some organizations in order to provide their users with a valuable product to interact with the company. Non-Fungible , defines something unique, which cannot be substituted or replaced by another.

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With this clear, we can delve a little more about its meaning in the digital world. In this area, we can define non-fungible tokens as unique digital assets, encrypted and linked to the blockchain. These cannot be exchanged for others, due to their unique and unrepeatable nature. And thanks to their unique features, NFTs cannot be copied or divided into smaller fractional units either . As the name suggests, NFT is unique and not interchangeable.

In other words, tokens represent something unique, encrypted, that cannot be exchanged and whose use is focused on the representation of assets. Developed with blockchain technology, NFT are tokens cryptocurrency that represent a single entity in the chain of blocks . And, since they are not interchangeable, they can serve as proof of authenticity and ownership in the digital arena. Thus, NFTs can be taken as digital assets or tokenized versions of assets of real world value.

What is the operation of these tokens?

The rise of Non-Fungible Token has been such that a number of different frameworks have been designed for their creation and publication, the most popular of which is known as ERC-721. This Ethernet Square issuance is regarded as the standard for the creation, issuance and trading of non-homogeneous or non-exchangeable assets on an Ethereum blockchain. In addition, a new, improved, newer and more updated version of the standard called ERC-1155 is now available.

This new standard also allows the conclusion of interchangeable and non-interchangeable tokens in a digital contract, which opens up a completely new range of possibilities for this type of transaction. In addition, the standardization of the NFT broadcast allows a greater degree of interoperability between the various decentralized applications; which ultimately benefits users. This means that unique resources can be transferred, between different applications with relative ease, between different open commercial platforms like OpenSea.

These markets interconnect sellers and buyers by assigning a unique value to each token that is traded. Naturally, TNFs are prone to price changes in response to market demand and supply. As with any other valuable item, the value is not tied to the item itself, but is assigned by the people who find it valuable. In this way, each item becomes valuable. And the same is true today with digital collections.

What utilities are your main ones?

Non-fungible tokens are also known as collector’s cryptocurrencies, and are key components of the new blockchain-based digital economy. In the world of decentralized applications (DApps), they can be used to generate unique digital elements . Which can be investment products, collectibles, art, or any other product of significant value. And, thanks to the continuous evolution of the field of different online games , some games have already started to have their own economies.

This can help minimize the rampant inflation problem found in many games today. By using Blockchain technology to tokenize game assets, the growth possibilities of this industry will be unimaginable. Apart from this , a large number of assets have also begun to be tokenized in the real world, thanks to the fact that TNFs can represent different types of real assets, which can be contained and traded in the form of tokens on the blockchain.

In this way, the development of art and the revaluation of digital assets are also encouraged , providing much-needed liquidity to markets that lack it, such as works of art, real estate and rare collections, etc. Another field that is being benefited by non-fungible tokens is that of digital identity, the possibility of storing identification data in a chain of blocks increases the security and integrity of the data.

Known Projects Based on Non-Fungible Token

As we have already mentioned, the market for non-fungible tokens has grown almost 300% in the last year alone. And it continues to grow, the amount generated by NFT transactions in February of this year easily averages amounts above 300 million dollars. According to data provided by the CryptoSlam portal, most of this income is concentrated in only 5 NFT projects. Being NBA Top Shot the biggest income generator.

But we cannot overlook TNF’s first high-profile project: the game known as CryptoKitties, which allows players to interact with virtual pets (cats) built on the Ethereum network. With characteristics similar to those of a real cat such as age, color or breed. The one that must be fed and cared for and that can also be sold for a value that may or may not vary according to market conditions .

Nor can we fail to mention the increase in the number of collectibles that use non-fungible Tokens, such as online games, among which we can mention:

  • Decentraland
  • Gods unchained
  • My cryptoheroes
  • Binance collectibles
  • Crypto stamp
by Abdullah Sam
I’m a teacher, researcher and writer. I write about study subjects to improve the learning of college and university students. I write top Quality study notes Mostly, Tech, Games, Education, And Solutions/Tips and Tricks. I am a person who helps students to acquire knowledge, competence or virtue.

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