September 8th, 2021 | Updated on June 25th, 2022
As the crypto world grows and expands into different forms, it is important that you can make distinctions between terms like cryptocurrencies, cryptographic assets, fungible tokens and non-fungible tokens.
Once you understand these differences, you can learn more on topics like Non-fungible tokens and how they can apply to the things that you can do with them.
Having said that, here are the relationships between all four.
Fungible Tokens are classified as cryptocurrencies, and they can be exchanged and traded like regular currency. The value and identity of each of these tokens are the same.
Non- Fungible Tokens are classed as cryptographic assets, but they cannot be exchanged or traded like regular currency. Instead, the value and identity of each of these tokens are not the same.
For example, if you own a Non-fungible token, it will have its own distinct ID codes and metadata. Also, due to this unique identification, it can be used as a medium for a variety of different commercial transactions like the ownership of a specified piece of real estate property.
Now that you know this, here are some of the top things that you need to know about Non-Fungible Tokens or NFTs.
What You Need To Know About NFTs
One of the first things that you need to know is that these tokens cannot be replicated. However, when people own them, an NFT may represent a wide variety of different assets, including real estate or artwork.
For instance, NFTs are considered to be tangible assets in the real world, and they can be used in the form that is called ‘tokenizing’.
As tokenizing grows in its popularity, they are being used to make certain types of purchases more efficient to make. And, here are some of the primary benefits of conducting business with NFTs.
- Reduces the probability of fraud due to its unique ID, no two tokens are the same
- Assists with unique identification of individuals, property rights and lot more
- Digital representation of artwork, real estate etc.
- Simplifies transactions by eliminating the need for intermediaries
- Creates New Markets
- Focus based on collectibles like sports cards, digital artwork and other rarities
- Can be sold for millions of dollars
Just like physical money, cryptocurrencies can also be traded or exchanged. For example, if you want to know the value of bitcoin or ether, you need to know that both of them usually have the same value within their own platform. Simply put, one bitcoin may equal $50 and one ether may equal $60.00.
On the other hand, when you look at the value of a non-fungible (NFT), the value can vary based on the value of the asset that it represents. Here are some examples of this type of digital representation.
- NFT = one parcel of land
- NFT = artwork
- NFT= a combination of breeds, ie. coffee beans represents fair trade and online artwork represents digital artwork
Over the years, NFT’s have evolved in a number of different classifications like
- ERC-721 standard
- ERC-20 smart contract
- ERC-721 minimum interface
- ERC-1155 – standard with a reduction in transaction and storage cost
In addition to all of the above classifications, one of the most famous use case of NFT is cryptokitties. In this classification, the NFTs are the digital representations of cats.
And, when you break these unique identifications down, the term used is kitty (i.e. the price of an ether). In fact, when you nurture a kitty, one single transaction (real estate or artwork) can actually range into millions of dollars.
Significance Of Non-Fungible Tokens
Once you understand how NFTs are set-up and how they work, you may also understand why these non-fungible tokens are so important in the financial world. With the use of these modern financial systems, the digital financial infrastructure is completely transformed. Here are some of its main benefits.
- Helps to facilitate a more sophisticated loan and trading systems
- Streamlines processes and eliminate the need for intermediaries – promotes efficiencies in the market place
- No need for agents in artwork transactions
- Helps to better facilitate all actors in the supply chain, particularly when a wine bottle sale is involved
- Identify Management is enhanced greatly
- Gives individual the capability to convert passports into NFTs with the use of unique identification characteristics
Gives the real estate the capability to democratize investments in real estate – Makes it easy to fractionize property by dividing it based on multiple owners and separate pricing schemes
As the concept of NFT’s becomes more popular, there are many different inventive and creative ways to use them. One of the most important, as of recently, is ethereum’s blockchain, a commonly used virtual reality platform.