What you need to know about NFT (Non-Fungible Token)
It has been a couple of weeks since IOST introduced its NFT Standard dubbed as IRC-721. NFT stands for “non-fungible token,” a new type of cryptographic digital asset used to represent something that is unique. To fully understand this new type of digital asset we should understand what differentiates it from your regular cryptocurrencies which are typically fungible. In order to do this, we have to understand what it means for an asset to be fungible.
Fungibility is an economic term used to describe goods whose individual units hold the same value. Since each of its units essentially caries the same value they are therefore interchangeable. Take for example 1 gram of pure gold. No matter who owns this pure gold its worth is equivalent to another’s 1 gram of pure gold. The same holds true with other fungible tokens like cash. 1 dollar bill is worth 1 dollar bill it does not matter you exchange it with other’s 1 dollar bill.
In contrast, non-fungible tokens are not mutually interchangeable as each of these tokens or digital assets may represent a different value from a seemingly similar item. To illustrate this point take for example your baseball trading cards. Some trading cards may look exactly similar but has an entirely different value hence they cannot be interchanged with each other. Many dogs look the same but have different perceived values. No matter how your neighbor’s dog looks the same as your it is not as valuable as your own pet dog.
Unique Token ID
Similar non-fungible tokens (NFT) are differentiated with a unique token ID to distinguish them from each other. This helps identify ownership as well as establish the value of the NFT. This is especially important for collectible NFTs to determine scarcity, hence its value. It is a well-known fact that the first issuance of collectible items holds a lot of more value than its subsequent counterpart if ever there will ever be one.
Finally, NFTs are indivisible and have a minimum unit of 1. You cannot cut a trading card in half and retains half of its value. You would not certainly cut your dog in haft to share with your family right? This is the direct opposites of fungible assets. A fungible asset like a 100 US Dollar banknote can be subdivided into 100 pieces of 1 dollar bills, and still have the same value. Hence, fungible assets like currencies can be denominated with smaller value currencies.
NFT a new Crypto Asset Type
NFT assets are the value medium used to represent unique and non-monetary assets. Thanks to blockchain technology we have now the technology to represent unique items digitally. Through the use of NFTs, digital items can be traded efficiently similar to real-world items and have an effective mechanism to prevent digital forgeries. It is the very same technology that made cryptocurrencies an effective medium to hold value— blockchain technology.
There is an abundance of use cases for NFTs. NFTs can represent negative assets like liabilities, ownership of in-game items, identity documents, proof of equity, or any other assets that may hold value in the digital space. With NFTs blockchain developers will now be able to include assets beyond the traditional cryptocurrency economy and allow them to leverage the advantages of blockchain technology. This might be the key to achieve mass adoption.
What do NFTs have to offer?
First, NFTs give users provable scarcity. If digital items are converted into NFTs they will have a unique token ID which can be used to attest for its unique existence that is provable anytime. Those who want to verify its validity can check the blockchain to validate these IDs. Since they are written in blockchains it is impossibly difficult to forge IDs as it would need to reach a consensus from all participating parties which is highly unlikely.
Through the use of NFTs items like digital event tickets, digital lottery entries or digital certificates cannot be easily be counterfeited. NFTs empower both issuer and holder to check the validity of these tickets of certificates. With NFTs the issuer has no monopoly of authenticating them as users will be able to check the blockchain for their validity. This will usher in a new level of confidence for consumers in what they are purchasing.
Second, NFTs will enable true digital ownership. By leveraging blockchain technology users are now empowered to truly own and hold custody of the digital assets they buy or earn. This means the existence of digital assets will not anymore depend on a single centralized organization. This means digital assets will continue to exist even if the service that created them closes down. NFTs will remain intact on the blockchain and may be utilized in other future applications.
This also means that NFT digital items that were previously used in other application can potentially be reused again in other or future applications. In other words, they can exist well beyond the typical useful life of traditional digital assets. The interoperability of digital items is now a possibility with NFTs. One virtual item can be transferred or used in multiple games enhancing its utility and may increase its overall value.
Third, NFTs are programmable digital assets. This type of cryptocurrency can have unique information about a digital asset and store it in a public or private blockchain. Additional information can be added later that can add or remove value from it. Take, for example, a game character with much more experience and higher attributes, this may have a lot more value than that of a similar character with lower stats, this holds true with in-game items.
NFTs add new dynamics to the interaction of gamers, publishers, and consumers. This allows digital goos to be used, collected, and combine in unique ways within the primary apps for which they were originally designed for as well as future apps that will allow them to re-use these digital assets. For the first time in gaming history, cross-app (games) reusability is now possible and may add tremendous value for customers as well as its game designers.
Finally, NFTs adds liquidity to digital assets. Prior to NFTs, digital items can only be traded securely in market places that the issuers own. These are oftentimes proprietary systems that are solely controlled by the single central entity. This means trades can only be made if these issuers allow it and they can easily restrict people from trading. This is the total opposite of NFTs as users are in full custody of their assets and can freely move them in open markets.
Since NFTs are powered by blockchain it will offer a secure, unstoppable, irreversible, and immutable trading venue. Each of these assets can be valued and exchanged in a global marketplace that is not necessarily controlled by the asset issuer. This means traders cannot be denied or restricted access to their own digital assets as well as any other restrictions that may apply. NFT enables self-sovereign digital asset ownerships not possible before.
IOST’s Official NFT Standard
IOST is not the first blockchain that offered the NFT standard. This honor goes to Ethereum which is also the first blockchain with smart contract features. However, Ethereum is riddled with technical challenges that make it unsuitable for mass adoption. These issues include scalability, high transaction fees, and excessively high energy cost. All of which does not affect IOST NFT standard.
This was made possible through its unique consensus mechanism, Proof-of-Believability, that enables it to process 8,000 transactions per second (TPS) compared to Ethereum’s deplorable 25 TPS. It also features feeless-like transaction models through its unique resource allocation model similar to EOS but more efficient, without volatility since resources are not tradeable. Furthermore, it does not use miners to validate and confirm transactions making it more power-efficient.
What does IOST’s IRC-721 have to offer?
For developers, IOST’s IRC-721 presents a standard protocol for which they can issue their own scalable NFT assets. This will lower the threshold and difficulty for developers that would allow them to allocate valuable development resources to other important aspects of their project. IOST’s NFT standard protocol offers the same level of scalability, decentralization, and security of its fungible as well as benefit from its superior resource allocation model that is more effective than EOS and much less costly than Ethereum.
For users, the use of IOST NFT assets will enable them to use NFTs that are more scalable, allowing them true digital ownership, have a standardized process for seamless cross-chain interoperability, and offer other advance NFT features not found in any other blockchains. These include external storage of metadata when it becomes too big for internal storage, locked transfer mechanism for more flexible NFT asset issuance, and blacklist management functions to meet the management needs for various applications.
It is truly an exciting time for IOST with the release of a new cryptocurrency standard. This opens up a whole new world of possibilities for IOST, its developers, and community supporters. It is too early to say if IOST will be as successful in this type of asset but we are eager to see what it has to offer in the future. IOST dApps for this type of asset is still under development but you can rest assured that we will e there to give you the latest information about this new and exciting class of digital assets that may hold the key for IOST to reach mass adoption.
- IOST Watch – Weekly IOST Digest #53 May 18, 2020
- AMA on Staking Economy In Crypto Serial With Head of OKEx Pool May 13, 2020
- What you need to know about NFT (Non-Fungible Token) May 12, 2020
- IOST Digest IOST Watch – Weekly IOST Digest #52 May 11, 2020
- IOST Digest IOST Watch – Weekly IOST Digest #51 April 27, 2020
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