The creation of the world's first cryptocurrency led to the fact that a new concept appeared in the digital environment - “digital scarcity”. Which can be interpreted as "digital uniqueness" or "rarity." The result is an exception to these rules.
Unique tokens (non-fungible tokens) became a logical continuation of this idea. NFS - unique and highly used in the release.
They became one of the main "building blocks" for the new digital economy. They are used in some computer games, in order to bind to certain certificates and even works of art. Technically, these tokens can be private.
What is NFS?
A unique token is one of the varieties of cryptographic tokens that relates either to unique digital information or to existing markers of ownership of a real asset. They can be used interchangeably.
Interchangeability is a characteristic feature for most types of currency. Any banknote can be replaced by a banknote of equivalent value - and nothing will change. It's a bit harder with cryptocurrencies because very often there is the opportunity to follow the history of a certain token, but this problem already solved. All this makes the most part of currency pretty bad for collecting.
But if you will add a unique identifier to each banknote or each token, it immediately makes them non-interchangeable. Actually, this is how the first NFTs were created.
How does it work and be created?
There are various mechanisms for creating unique tokens. For a long time, the ERC-721 algorithm was popular - the standard for issuing and trading similar digital non-interchangeable assets based on the Ethereum blockchain.
However, the technologies are always expanding and there is new ERC-1155 protocol. It allows you to store both interchangeable and non-interchangeable tokens within one contract. And it guarantees that they will be standardized and provide an opportunity to simplify the exchange and trading of unique digital assets.
And NFS tokens owner can create a special “trust wallet” or a simpe wallet where these assets will be kept safe. And you can be sure that no one will be able to take them from you, or copy them - even those who organized their issue.
There are also a special markets for trading such tokens, OpenSea, for example. This platform allows you to directly interact with sellers and buyers.
An important point - any NFS token is valuable only because it considers as valuable by a certain category of people. For other people, it remains useless and uninteresting, but some connoisseurs and collectors are ready to spend real money on rare things, and - quite a lot.
What can they be used for?
Decentralized applications (DApps) can issue their own NFS tokens in order to create unique digital elements and objects for collecting. Essentially - creating an opportunity for certain types of investments.
In addition, such digital assets have became extremely popular in the economy of online games. The ability to bind a virtual currency or a virtual object in a unique token has greatly facilitated the problems of inflation, exchange and in-game interaction.
NFS is also suitable for tokenizing real assets. Something like stablecoin, only the goal is different. So, for example, it is much easier to operate not with specific paintings, statues or other works of art, but with the right to own them.
NFS tokens can also be used for digital identification. Since storing large sides of frequent information within the global blockchain is a good practice for users from all over the world.
CryptoKitties and Ethereum
One of the first successful examples of using NFS tokens. On the basis of the Ethereum blockchain, a decentralized application that allows you to collect images of cats was created. CryptoKitties were unique and visually different from each other - each has its own age, color, breed, additional accessories. At the same time, a unique indivisible token was tied to each CryptoKittie.
The game turned out to be so popular that at some point it even overloaded the Ethereum blockchain - too many transactions were tried by cat lovers at the same time. The situation was handled, but the traffic from CryptoKitties, even according to data from February 2020, accounts for the majority of the transactions within the blockchain. But for every such transaction, there was real money. In total, millions of real dollars were involved in the gaming economy, and very rare crypto kittens were sold at hundreds of thousands apiece.
Popular NFS Related Projects
Decentraland. The combination of virtual reality and unique tokens. Players can exchange elements of the landscape and parts of their virtual territory to create something quite beautiful.
Gods Unchained. Digital collecting card game. Something like Magic The Gathering, but completely digital. However, rare cards there are just as hard to find as in a real game.
My crypto heroes. A multiplayer role-playing game in which game characters and in-game items are associated with NFS.
Crypto Stamps. The idea belongs to the Austrian postal service. Stamps themselves are a subject of active collecting, and by adding a unique QR code associated with an NFS token, they have also been converted to digital format. To do this, they needed an application based on the Ethereum, which allows not only to exchange “crypto-brands”, but also to view your collection.