image post
author image
Editorialist

Non-Fungible Tokens and Crypto Collectibles

Basics of Cryptocurrency
Last updated May 8, 2020

Most of the time we think of cryptocurrencies as a form of virtual money. So, non-fungible tokens and crypto collectibles may sound really strange.

10 Bitcoins are equal to 10 Bitcoins. Right? How does it come that 10 NFTs are not equal to 10 NFTs? 

And what is this collectibles stuff about? What does it have to do with the crypto world?

This is not an advertorial for a comic shop or some premium skins in some game, so there is no link for a loot box with a 0.02% chance to get some premium item. 

Yet, we will see that the unique assets that non-fungible tokens allow to create are highly important for the future of distributed ledger technology.

What are non-fungible tokens?

What are non-fungible tokens

A non-fungible token (NFT) is a cryptocurrency token that is used to create a unique asset.

Unique assets can refer to works of art, ownership titles, identification, and of course collectibles. With NFTs, all kinds of real-world and digital assets can be registered in a blockchain, so all details about who owns what are safely stored and immutable.

All NFTs have 4 core characteristics: 

  1. They cannot be replicated.
  2. They cannot be counterfeited.
  3. They can’t be printed on demand.
  4. They have the same ownership rights and permanence guarantees as Bitcoin.

Through these characteristics, non-fungible tokens can be used to identify unique items and limited edition products. Nobody can counterfeit a product associated with an NFT, and nobody can claim ownership of such an item even if they stole it.

Imagine someone’s trying to sell you a limited edition Porsche car. With NFT, you can easily check if the car is registered in the limited edition smart contract, and also if the seller is the rightful owner. If the car doesn’t correspond to the NFT, you know it’s a fake. If the car is legit but the NFT says someone else is the owner, you find out immediately it was stolen and get out of a complicated situation.

Is there a need for NFT?

Of course there is! You may not live in an ex-communist country but you surely heard at least once of nationalization. 

Although the government is the one protecting your rights, across history we notice that the rulers did sometimes confiscate properties from their citizens, just because they could. And once the situation changed, in one or more generations, it was nearly impossible to prove who was the rightful owner.

These days, the government is less likely to take the initiative in confiscating stuff from its citizens. However, we still hear of nasty gangs stealing and modifying papers to expand their wealth at the expense of regular citizens.

However, we see the governmental institutions investing in security to improve the safety of their centralized ledgers. But an event like the one in Haiti from 2010 shows us that it’s still not enough.

SIDENOTE. In 2010, an earthquake devastated Haiti and destroyed the municipal buildings containing documents regarding land ownership. After the destruction, citizens had to reclaim their land with no proof of ownership, and the rebuilding became complicated.

Going inside the digital world, we discover that the definition of ownership changes drastically. Thanks to the internet, you can watch movies, get the software, and play video games without going out to a store to buy a CD or a DVD. 

However, if you ever used Netflix, you already know that you can’t close your account and just take all the movies to move to Amazon Prime. 

And if you ever used Steam, you may have realized that through requiring you to be logged in, you are actually at the mercy of an external middleman to play the games and use the software you paid for with your own money. 

ERC721 and ERC1155

Although the EOS platform can be used for the creation of NFTs, the most commonly used smart contract is ERC721 from Ethereum. If ERC20 comes with a token that is valued the same as the next one, ERC721 introduces tokens that are indivisible and unique. 

Tokens deployed through ERC721 cannot replace each other even when they are from the same class. Most of the time a token has different characteristics from another one and because of that, they have different values which makes them non-fungible.

Nowadays, the most common use of ERC721 and NFTs are in games for deploying unique items known as crypto collectibles.

However, the limitation that ERC721 comes with is that it can only deploy one category of tokens at a time. So if you have to deploy more classes of unique items or even need an in-game currency system you might have to use a few more smart contracts and even an ERC20. 

That, of course, expands the usage of gas and may even come with background issues like difficulties of communication between ERC721 and ERC20.

ERC1155 solves this issue by proposing a standard where a single contract acts as an interface for multiple types of tokens such as fungible, semi-fungible, and non-fungible.

Non-fungible vs fungible

Non-fungible vs fungible

Fungible… Fungi… Mushrooms?

Actually no! Fungible/fungibility is a term that expresses the property of an item whose individual units are interchangeable and indistinguishable from one another. The term comes from the Latin verb fungī, meaning “to perform” and is not related to the Latin and English noun fungus or its plural, “fungi” (which means mushrooms).

In a few words, when a thing is fungible, it is the same as another thing from the same category. When a thing is non-fungible 2 things are different even if they are from the same category. Two bricks can be the same but my house is certainly different from your house, even if they are both houses.

We meet with the propriety of fungibility in finances when describing fiat money. For our economy to work all units of a currency must be interchangeable for the same value. My 1 dollar bill is the same as your 1 dollar bill.

In the creation of the Bitcoin and other cryptocurrencies, the developers kept the fungibility property to indicate the possible use of crypto coins and tokens as a new and more reliable financial system for the exchange of goods and services.

SIDENOTE. Some say Bitcoin is not fungible because it can be traced back and checked what it was used for. For example, if a coin was used in illicit transactions people are going to avoid buying it, thus making it useless. Although it’s true, Bitcoin is considered a fungible coin because every coin was created to be the same as the other.

Tokens usually revolve around an ecosystem, usually a decentralized application, in which they are meant to be used for various processes and transactions. Those tokens are all fungible.

However, the power of tokens can be applied to represent even real-life assets or digital items from a game. While the ownership and the proprieties of the digital assets are stored on a blockchain, the owner can always control his asset just by holding a unique token.

And because the non-fungible token describes a specific asset, it will be different from any other NFT, even when they serve the same purpose.

What are crypto collectibles?

What are crypto collectibles

Crypto collectibles are digital collectibles based on blockchain as non-fungible tokens. Like in the case of every other token, at their foundation stands a smart contract. The smart contracts allow the crypto collectibles to be bought, sold, and traded with a relative value influenced by rarity and demand. 

As a matter of fact, a whole sub-industry has formed around these crypto collectibles that evolved beyond peer-to-peer trading into marketplaces where anyone can sell and buy them.

Once you buy a crypto collectible you can either hold it in your Metamask or put it in a wallet that supports NFTs. But keep in mind that it’s quite expensive to send a crypto collectible because it holds more data than a regular transaction.

SIDENOTE. Metamask – browser extension that allows you to run Ethereum dApps right in your browser.

Apart from being used as a store of value and for trading, crypto collectibles are largely used in the creation of crypto games.

Does CryptoKitties sound familiar to you?

CriptoKitties is the most known crypto game that involves crypto collectibles.

CryptoKitties is a game built on the Ethereum blockchain in which the players buy, breed, and sell unique cats with different traits. Some traits and configurations are rarer than others making the collectible more valuable. And if you’re wondering how valuable, imagine that the most expensive CryptoKitty was sold for 600 ETH (approximately $170,000 at that time).

How is this possible? It’s simply because the world likes to collect rare objects. People collect postage stamps, old withdrawn banknotes, baseball cards, and lots of things that might look like junk but sell for considerable amounts of money.

Top crypto collectibles

CryptoKitties in CryptoKitties

CryptoKitties is the most popular crypto game built on top of the Ethereum blockchain, which makes use of crypto collectibles. It has the highest all-time volume of $36,557,745.64 and besides the base game, it also offers lots of games and experiences built on top of the platform.

Land in Decentraland

Decentraland is the second most popular crypto game with an all-time volume of $21,772,371.07. This game is a virtual reality hosted on the Ethereum blockchain in which users can own Land as crypto collectibles and create, experience, and monetize content and applications.

The main selling point is the idea of permanently owning LAND into a virtual reality and having entire control over it. The members of the community control the published content on their portions of land, which is identified by a set of cartesian coordinates (x,y).

Heroes and items in MyCryptoHeroes

MyCryptoHeroes is the third most popular crypto game with an all-time volume of $4,401,045.14. It is an RPG style game based on the Ethereum Blockchain. The game has quick battle cycles and a gameplay that involves creating teams of heroes. MyCryptoHeroes makes use of ERC721 tokens to create crypto collectibles in the form of Uncommon Heroes and Original Extension unique items.

The NFT market and the gaming industry

The NFT market and the gaming industry

The NFTs bring decentralization to the gaming industry. If you ever invested a lot of time, energy, and possibly money into a game to reach a level, a status, and obtain some cool equipment, you know the frustration that comes when the game’s company reminds you who’s actually the boss.

Online games shut down, get updates that nerf certain skills or equipment, or just get boring.

Blockchain-based games allow players to have permanent ownership and full control over their in-game assets with the help of non-fungible tokens. Either it is an in-game card, skin, equipment, or character the player is free to use however he wants and is ensured that nobody can change or nerf an owned asset.

Also, NFTs can allow you to take all your crypto collectibles out of a game you have played for a while and move to another game that’s connected inside the same blockchain. So, you won’t have any problem if a server gets closed or you just want to try something different.

Right now, you are able to take your unique CryptoKitty and use it in games built inside the KittyVerse ecosystem.

Imagine what it would be like to take your World of Warcraft character for a ride into an Overwatch match.

Key takeaways

  • A non-fungible token (NFT) is a cryptocurrency token that is used to create a unique asset. Unique assets can refer to works of art, ownership titles, identification, or collectibles.
  • The most commonly used smart contract standard for deploying NFTs is ERC721. However, ERC1155 comes as an improvement that allows the creation of multiple classes of tokens from the same contract even if they are non-fungible, semi-fungible, or fungible.
  • Fungibility is the property that describes an object to be originally the same value and with the same characteristics as another object from the same class. Non-fungibility is the property of an object to not be replaceable with another object from the same class because of the unique characteristics.
  • Crypto collectibles are digital collectibles based on blockchain as non-fungible tokens. The most popular crypto collectibles are CryptoKitties.
  • NFTs are able to bring decentralization to the gaming industry and allow players to take full ownership of their in-game assets regardless of the state of the gaming server.
2
Copy link