Disclaimer: I am not a financial advisor and none of this represents financial advice. Investing money in NFTs is at your risk.
Isn’t it worrying that even the biggest tech firms seem incapable of protecting your data? Facebook, LinkedIn, Reddit, Twitter, etc… You name the company and they’ll have been hacked. And it’s not just tech firms either. The Equifax data breach exposed the personal information of 145.5 million Americans, including their social security numbers. MyFitnessPal? 150 million users had their data stolen. Marriott Starwood? Five million users affected. The list of companies goes on.
It’s not just companies either. Entire nations are being hacked. Every working adult in Bulgaria saw their tax information stolen in 2019. In the largest hack ever, Aadhar, the Indian government portal, came under attack and saw the information (including the biometrics) of a staggering 1.1 billion users stolen.
My point is, any centralized entity with a lot of data will, at some point, get hacked. They’re constantly under attack and one attack will eventually get through that will see your information sold on the dark web for a serious amount of money. Data breaches happen so frequently that it’s come to a point where I feel that society has stopped caring about all them. Most people have grown numb to them, apathetic to data breach number eighty-four this year. It’s almost as if seeing your data hacked has become an inevitability.
Of course, this isn’t a good trend. Firstly, there’s the element of privacy. Just like you wouldn’t want everyone to be able to look into your house at all times, you shouldn’t want everyone to have easy access to your email, phone number, and address, let alone your credit card information or your social security number.
Secondly, it’s plain dangerous for your information to lie exposed in an obscure corner of the Internet. The wrong people can use it to steal your money, to blackmail you, to hack your social media accounts, to ruin your credit score, etc… Although it might not have happened to you yet, you don’t want to be exposed to that risk (particularly not when you grow wealthy and become a bigger target).
While there are good measures you can take to avoid seeing your Internet appear in a zip file on a forum post, such as using a firewall and avoiding obscure websites, you can’t protect yourself against hacks of organizations that you’ve entrusted your information with. The problem ultimately lies with the centralized entities that are being hacked.
The solution comes in the form of blockchain technology and, more specifically, in the form of non-fungible tokens (NFTs). This article will explain what NFTs are by comparing them with fungible tokens, briefly discuss different token standards, the current applications in gaming for NFTs, and future NFT applications in art, real estate, identity management, and more. After the article, I hope you’ll have a better idea why NFTs are vital for a secure digital future where users are back in control of their information.
The Difference Between Fungible and Non-Fungible Tokens
Imagine you and your friend each have a one-dollar bill. Would you mind exchanging your dollar with his? You wouldn’t, because his dollar is of exactly the same value as your dollar. That’s the idea behind fungible tokens: they’re blockchain tokens that all have the same value. They’re interchangeable. All cryptocurrencies are fungible tokens. You wouldn’t mind exchanging your bitcoin with your friend’s, because each bitcoin is a fungible token.
Now imagine that you have a Bulbasaur Pokemon card and your friend has a Mewtwo Pokemon card. Would he be okay exchanging his card with yours? Of course not! His Mewtwo card is far more powerful and is worth much more than your Bulbasaur one. It has more HP, better abilities, and better protection. He’d be a fool to exchange it for a Bulbasaur.
And that’s the idea behind non-fungible tokens: they’re blockchain tokens that are unique, not interchangeable, and non-divisible. Additionally, they’re programmable, in the sense that they’re created by a smart contract on a blockchain, and immutable, in the sense that you cannot change their properties once they’ve been created.
Different Token Standards
The tokens on each blockchain have technical standards that they need to adhere to. As Ethereum is still the most popular blockchain platform, we’ll briefly explain the different Ethereum standards here. The ERC-20 standard is the one used for fungible tokens. Cryptocurrencies on the Ethereum platform, such as Augur, 0x, and BAT, are all ERC-20 tokens.
Ironically, ETH itself isn’t ERC-20 compliant. That’s because the Ethereum token is the native currency that’s required to operate the platform. If you want to trade ETH for an ERC-20 token, you’ll need to turn it into Wrapped ETH (WETH), which you can thankfully do at no extra cost.
The second important Ethereum standard is ERC-721. This is the technical standard for non-fungible tokens. Your Cryptokitty is an ERC-721 token, as is your Blockchain Cutie or your LAND in Decentraland. ERC-721 is still relatively new, as it was only established as the NFT token standard in March 2018 (after the success of its predecessor EIP-721).
However, an even newer Ethereum standard, one that only progressed to its final state in June this year, is ERC-1155. Originally proposed by the Enjin team, ERC-1155 allows smart contracts to contain both fungible and non-fungible tokens. This opens up a myriad of new opportunities to combine tokens.
For example, an investor could be able to sell their investment portfolio in one go. All they’d need to do is bundle everything in a single ERC-1155 contract, all their cryptocurrencies plus all their NFTs, and sell it for whatever they want.
ERC-1155 doesn’t make ERC-721 obsolete. Both are compatible with one another. It’s just that ERC-1155 will allow people to combine both cryptocurrencies and digital assets, which is a much better solution than having to awkwardly manage both non-fungible and fungible tokens separately.
Current Applications of NFTs
As with most new, innovative technology, gaming was there first. NFTs exploded in popularity along with CryptoKitties in December 2017. DGamers quickly discovered that NFTs can earn you some serious money. A slew of collectible games followed, some better than others. Eventually, however, the interest in purely collectible games died out. After all, they weren’t as much games as much as they were hot-potato mechanisms where you’d buy an NFT and try to sell it for more.
What we have now is NFTs in DGames that are increasingly fun to play. Gods Unchained is one example of a high-quality DGame where NFTs have value because they’re NFTs, but also because they have a particular function in a game. Some cards are simply better than others, so it only makes sense that these cards will go for more money once Gods Unchained releases its marketplace (somewhere in October, if all goes to plan).
What’s wonderful about NFTs is that it allows developers to create a system that makes the same items more or less valuable. For example, items can be of a certain generation. A gen 0 CryptoKitty will sell for a lot of money, because it was part of some of the first CryptoKitties ever created. Another example could be the rarity of an asset. A rare Steem Monsters card is more valuable than a common one.
Developers can create a taxonomy of value that they can create contests around (e.g. have a chance to win a rare card if you play 20 games this weekend). While this was all possible in non-blockchain games as well, it wasn’t as impactful because you couldn’t ultimately sell those assets for money. Who really cared about your rare sword in World of Warcraft? It’s not like you could eventually sell it for hard cash. You were never building a portfolio of valuable assets.
With DGames, you are building a genuine investment portfolio. Every NFT you purchase, you’re likely to be able to sell for more later, particularly as DGames grow increasingly popular. Of course, it’ll depend on the specific game you’re playing, but you’ll know when you’ve found a DGame that is likely to grow more popular. Is it fun to play? Does it have an active community? Does it have valuable NFTs already? If so, you’ve likely found yourself a winner.
Those who profit most are those who are early to a DGame (or anything new, really. Imagine buying Bitcoin in 2011). It’s still early days in DGaming. Invest responsibly and do your due diligence, of course, but there’s little reason to hesitate to buy a few NFTs. I’m saying this as someone who spent $150 in Steem Monsters and sold his deck for around the same amount without trying to make a profit (I could probably have made between $250-300 easily if I hadn’t listed every card at its lowest price).
This is only one of the many reasons why it’s worth paying attention to the DGaming festival running from 26 Aug to 6 Sep. It’s twelve days of crypto giveaways and NFT sales to celebrate the upgrade of the DGaming platform to incorporate unique item sales. If you’re looking for an easy entry into NFTs, have a look at our platform between 26 Augustus and 6 September.
Future Applications of NFTs
Gaming is only one area where NFTs are useful. The ability to store any good in a unique, verifiable, non-divisible token has applications in pretty much every industry you can think of. This is true for largely digital industries, but also for industries that are largely physical. Let’s take art as an example (if you can call that an industry).
Physical artwork is often contested in wills. Here’s one example of an artist who passed away and whose wife claimed he signed a will saying certain pieces of art (including a house meant as a work of art) wouldn’t be sold. The artist’s daughter, however, contests that claim and wants a portion of the house. It’s a difficult legal issue, because it comes down to believing one party over another.
If the will and the artwork would’ve been represented by NFTs on a blockchain, there would’ve been no such problem. The will would have been placed in the deceased artist’s name and would state clearly what would happen. The pieces of art would have been transferred from the artist to whoever the will said it would, without any centralized entity taking fees or without anyone interfering with the transfer.
Another useful application of NFTs is to combat counterfeit items. If David Hockney would tag his art with an NFT, people could scan the tag of a Hockney painting to determine whether it’s an actual Hockney painting (because the original owner would’ve been Hockney) and whether you’re the actual owner of the painting (because it would be in your name).
The same goes for any industry that’s plagued with counterfeit goods. In fact, LVMH, the owner of Louis Vuitton, is launching a blockchain so users have a certification of authenticity on their handbags, which fake handbags won’t have. That’s only possible because of NFT technology.
And, to come full circle, NFTs can be used to manage your personal information. Your identity could be an NFT on the blockchain, giving you full control over which piece of personal information is used by which company. Instead of your data being collected on a centralized server, outside of your control, you’ll give access to the specific personal information that banks, governments, and tech startups want.
Non-fungible tokens are an important technical innovation for an increasingly digital world. They’re immutable, verifiable, non-divisible assets on a blockchain. They’re a way to diversify your portfolio (through DGame assets!) and, given the inability of companies keeping your information secret, a way to put your personal information back where it belongs: under your control.