ERC721 tokens, (or non-fungible tokens as they are more commonly known), have come a long way since they were first proposed in 2017. ERC-721 is the 721st proposal of the Ethereum Improvement Proposals (EIPs) to standardize how Ethereum will work. Most proposals are not accepted but in June 2018, ERC-721 gained enough support and was accepted as ‘final’ status.
The token standards set out some common rules on the Ethereum network to follow; they specify the following characteristics:
- How are tokens created?
- How is ownership decided?
- How are tokens transferred?
- How are tokens burned?
What’s the Difference between Fungible and Non-Fungible Tokens?
NFTs run on the Ethereum blockchain and enable the tokenization of any data. Each token is pegged to a different identifier, unique to the owner. You can think of them like one-of-a-kind collectables.
This is a contrast to the ERC20 token standard for fungible tokens where the tokens are entirely interchangeable as developers create many tokens within one contract. An example of a fungible asset in the ‘real world’ would be a 1$ note, if you were to lend someone a dollar, it would be fine for them to give you back a different dollar.
Another difference is that fungible tokens are divisible; you can send fractions of a token whereas non-fungible tokens must be whole. For example; Bitcoin can be divided up into smaller parts which are completely interchangeable; this makes Bitcoin fungible.
What’s so special about Non-Fungible Tokens?
Non-fungible tokens allow you to include metadata about an asset, detailing attributes and adding information about ownership. Providing details about what makes them special – far beyond the name, balance, token supply and symbol. For this reason, non-fungible tokens already have several practical applications and can easily integrate into other ecosystems.
Applications of Non-Fungible Tokens:
NFTs can cater to so many different people, from serious traders to crypto newbies intrigued by virtual cats (for example). This development has allowed for greater exposure and provided liquidity to gaming assets because of the instant options for trading! Non-fungible tokens have given the world collectable digital assets and the bases for blockchain-based games.
Most notable of all was CryptoKitties created by Axiom Zen which became an overnight success in a game where you can breed and collect virtual cats. CryptoKitties utilize the ERC721 token standards, and therefore your virtual cats are completely unique, owners are confident that their assets cannot be replicated or taken. Since the cryptokitties craze, there have been several games and applications that have followed suit and built their platform based on the ERC721 token standard.
Decentraland is a virtual 3D platform that allows users to buy plots of land and build on them. They use two tokens: MANA (ERC20 token) that are burned to get a LAND (ERC721 token). Once you own the virtual land you can build whatever you want on it, apps, video or audio content to add value to your virtual land.
Codex is a registry for art and collectables that enables you to verify and store information about your art in an NFT. This development is useful for insurance and security issues surrounding ownership of valuables and asset-backed lending.
PO8 are using NFTs to bridge capital gaps in conservation, enabling access to artefact investments, yep that’s right – marine archaeology on the blockchain. NFTs are tokenizing $100 billion worth of sunken artefacts around the Bahamas and bringing with it a transparent system of identifying the artefacts and claiming ownership.
The applications for this go beyond underwater artefacts, the PO8 team is working in collaboration with the government to create a dynamic crypto scene on the island.
The LAToken platform (powered by LAT tokens), allows you to tokenize assets like real estate, gold or artwork. Thus making them sellable in parts.
To take advantage of this, users must first buy LABT tokens which are backed by publically traded assets like stock shares. LAToken allows users to buy tokenized shares of stocks like Google, Apple, Tesla and even physical assets like real estate, oil and metals.
One Step Further: ERC-1155
Proposed by Enjin Team, ERC-1155 suggests an upgraded version of ERC-721 where you have thousands of digital assets. For example, some hardcore gamers may have up to 100,000 digital items, with ERC-721 this would mean you would need 100,000 separate smart contracts if you wanted to tokenize all of those items. ERC-1155 combines ERC-20 and ERC-721 is a smart contract with data that marks it as different from the others. Therefore making it possible to send multiple items (tokens) to more recipients in a single transaction. The benefits of this are apparent; faster transactions with lower costs and less network congestion.
The Future of Non-Fungible Tokens
Everything considered; exciting NFT developments are emerging in a time when online and offline worlds are increasingly blurred. Online gamers are no longer restricted; NFTs enable them to trade their digital items in open crypto markets. Virtual cats and gaming are just the beginning of the potential applications for NFTs as we see developments in the world of art, music, fundraising, real-life land registries and digital rights emerging.