THE COLLECTIBLES HAVE GONE CRYPTO

An in-depth expose on Non-Fungible Tokens and Crypto Collectibles

What does Fungible mean?

An asset is fungible if one unit of the asset is substantially equivalent to another unit of the same asset, having the same quality and can be substituted for each other at any given place or time. Fiat currency is a relatable fungible asset because a $20 bill in New York is the same as $20 in Texas. Fungibility of assets can also be explained in how value can be retained in divisibility e.g. two $10 bills has the same value as one $20 bill. Until recently, cryptocurrencies were generally created as fungible assets e.g. 1 BTC is equivalent to another BTC either as a whole coin or in fractions.

Non Fungible Assets

Non-fungible assets are unique and special because they differ in value and properties. Units of non-fungible assets cannot not be valued as another unit of the same asset i.e. they are not mutually interchangeable. They are oftentimes rare and scarce, hence, they tend to be highly valued by collectors.

What are collectibles?

Collectibles are items that are sought after because they are considered to be worth of value to the collectors, oftentimes can be exchanged for money much more than the items are originally worth. In the traditional world, these items are often unique, limited in supply and/or rare and once they are collected, their value increases because of demand e.g. stamps, antique furniture, comic books, posters, art etc. With the advent of computers, virtual collectibles have become quite popular in the last decades e.g. in-game collectibles are highly valued in the gaming space as well as other items that are valuable in their own digital ecosystem. When these rare items are embedded into the crypto ecosystem, they become non-fungible tokens (NFT).

What are Crypto Collectibles?

A crypto-collectible is a cryptographically unique, non-fungible digital asset created on the blockchain in form of a token. It is often referred to as Non-Fungible Token (NFT). These tokens are not interchangeable and each token cannot be divided into smaller units. A non-fungible token uniquely stores information about an asset in its smart contract on the blockchain.

History of NFT

The collectibles market has grown massively in the last century with a global estimate reaching hundreds of million dollars. Crypto collectibles came into existence in the early days of Bitcoin with the creation of Colored Coins. In 2012, Colored coins were made of small denominations of a Bitcoin and used to represent various assets on the blockchain. After which came a series of other NFTs which didn’t gain much popularity until Cryptokitties hit mainstream in 2017. Cryptokitties is a game built on the Ethereum network that allows players to collect, breed, and exchange virtual cats. It uses the ERC-721 NFT token standard and is notorious for creating a congestion on the Ethereum network due to the high volume of activities of the users.

Application of NFT

Tokenisation of non-fungible assets has created endless possibilities for blockchain asset digitisation. What blockchain offers the collectible market is much more in security and digital scarcity, especially to ensure authenticity of assets and eliminate counterfeiting. NFTs are popular in the gaming ecosystem but besides gaming, NFTs can be used to digitise anything considered to be of worth.

Decentralised applications (Dapps) on the blockchain use NFTs for investment purposes, digital identities, virtual assets, fine art, trading cards etc. Since the explosion of NFTs in the cryptospace in 2017 coincidentally aided by the ICO boom, there has been a significant growth in the crypto-collectible market with over a hundred successful NFT projects. Here are a few popular ones:

-Decentraland — a virtual reality platform that is wholly owned by users, powered by the Ethereum blockchain. Users can create, experience, and monetise content and applications.

-Binance Collectibles were created in 2018 as a series of holiday-themed NFTs to serve as prizes for a festive engagement campaign during the season of giving.

-MyCryptons has digital collectibles of public figures, ranging from Head of States to celebrities like Oprah Winfrey that can be collected and sold.

- SuperRare — a blockchain project that is creating NFT that enables digital artists to link an image or a GIF they’ve created to a token.

Creating a NFT

Tokenising an asset has been made easy with smart contracts on the blockchain. The most popular and widest implemented approach standard is the ETH-721 and there are numerous Dapps in the crypto space that have ready-to-use templates and tools accessible for creation of NFTs without coding expertise. Another token standard that can be used to create NFT like the ERC1155.

Conclusion

NFTs are becoming popular in use as it offers a non-restricted use of blockchain technology in the most unique and futuristic approach. Virtual assets such as tweets, digital art and domain names are being tokenised and this is made possible because transfer of ownership and authentication of assets are secure on the blockchain. Although like the blockchain technology NFT is considered to be in its infancy with a need for improvement. One of the challenges it faces is the cost of token transfer as NFTs are immensely gas heavy.