What are Non-Fungible Tokens?
A non-fungible token is a digital asset (a data token) that serves as an ID, deed, title, or other proof of ownership for a physical item, a unit of value, a loyalty point or points, or a ticket for a tangible asset such as a physical item. Why should you care? NFTs will enable a much broader range of applications across a wide range of industries and financial markets, transforming the $250 trillion U.S. economy. Many industries are digitizing in order to become more efficient and cost-effective. For example, PayPal’s acquisition of iZettle in 2017 for $2.2 billion is just one example of how the physical world can be digitized to empower microtransactions and financial transactions.
NFTs on the Blockchain
A recent report by Citrinology puts the market of non-fungible tokens at $18 million in terms of investment and production. By 2021, the market will be worth $84 million, with a compound annual growth rate of 70.5%. A report by Business Insider puts the global market size at $2.5 billion. Below is a snapshot of a non-fungible token: The graphic above shows non-fungible assets offered as tokens in digital asset exchange. Why are Non-Fungible Tokens Important for Digital Assets?
What is a Blockchain?
Blockchain technology is a public distributed ledger used to record transactions. It’s built from blocks that are linked together using cryptography to create a network of linked ledgers. How are Non-Fungible Tokens Considered to be “Fungible?” Digital assets can be represented in different ways, but many digital assets are immutable. Any copies of the same file will have the same information, such as the file’s contents, file metadata, and file modification time. Thus, non-fungible tokens are digitally signed, and therefore do not contain identical data from one transaction to the next. What are the Challenges Facing the Issuance of Non-Fungible Tokens? Non-fungible tokens have been applied to several different verticals. For example, “Food of the Future” and “Blockchain for Art”.
How do NFTs work on a Blockchain?
Non-fungible tokens are signed and secured using a blockchain, creating a cryptographic signature and hashing that data to produce a permanent history of the asset in an open and transparent fashion. What’s a Decentralized Registry? A decentralized registry is a decentralized database that records transactions, assets, and other related data of value stored on a peer-to-peer network. DGRs are open, peer-to-peer networks, where the data is stored and maintained by network participants (called peers) rather than a central authority or central server. The most well-known decentralized registry platform is filecoin, which also powers the new decentralized storage platform Storj. Filecoin uses the Graphene Blockchain to track ownership of files.
Non-fungible tokens are a major innovation in the cryptocurrency space. In my previous article, I explained what they were and how they work. In this article, I will explain what NFTs are and why they matter for the blockchain space. Even if you’ve read the previous article, you might still have questions. Let’s cover a few of those here: How can a non-fungible token not be a copy of the object or asset it represents? How can we authenticate ownership of a non-fungible token? How can non-fungible tokens be stored on a blockchain? How can non-fungible tokens be circulated among the public? Where do we see non-fungible tokens? If you have any more questions about NFTs, let me know in the comments and I’ll do my best to answer them.