What is a non-fungible token?
There is a lot of talk in the crypto-community surrounding fungible and non-fungible tokens but what are they? In this article, we hope to cast some light on what they are and how they can be used.
What does non-fungible mean?
When something such as a token is called ‘fungible’ it means it has the possibility to be replaced by something else that is identical and interchangeable. A good example of this could be a grain of rice or a €5 note in your wallet. If you want to lend that €5 to someone, you can and it doesn’t matter if they do not repay you with the exact same note.
When something is non-fungible, they can look and appear identical at first but each will, in fact, have its own unique information and attributes meaning it is not possible to swap them. A good example of this would be a plane ticket – two plane tickets may look the same but each has different passenger information, destination details, and even prices.
Based on these two definitions, a non-fungible token is one that may have others similar to it, but that carries its own information and attributes meaning it cannot be interchanged with another token of the same, or any other type.
What makes a non-fungible token different from another token?
Most cryptocurrencies are fungible in nature; for example, if you send a BTC and receive a BTC, they will be different coins but you won’t be able to notice the difference.
Whilst we can compare a fungible token to a €5 note, a non-fungible token is best compared to a baseball card – each has a unique set of data and varying levels of rarity. If you were to send a token to someone by accident and get a different one in return you could potentially lose a lot of money.
There is another feature that you also need to consider and that is that fungible tokens are divisible which means you can send a fraction of it to someone, rather than the whole thing. On the other hand, a non-fungible token must be traded or sold as a whole and cannot be divided in any way.
What are non-fungible tokens used for?
Cryptokitties is a good example of a use case for a non-fungible token. As any cat owner knows, it is not possible to simply replace a cat, nor can you divide one. Cryptokitties is a blockchain powered platform that recreates this concept in the digital world, storing each cats personality and genetic material in a digital format. These kitties can be bought or sold using ETH and some are more expensive than others. The platform was a huge success with the most expensive kitty selling for $120,000.
Since the launch of Cryptokitties, many other similar examples have followed.
What are the pros and cons?
A non-fungible token allows you to store and detail more of the attributes that make them unique. You have the ability to include vast amounts of metadata about each asset as well as details of ownership that can be verified in an immutable fashion.
In terms of cons, non-fungible tokens have been criticised due to the fact that the ERC-721 protocol is in its early stages. Some say that it is tricky and complex and that developing a decentralised application is a time-consuming task.
How are non-fungible tokens created?
It can be expensive and complicated to create non-fungible tokens and it can sometimes take months to create a DApp- something that is not practical in the fast-paced world of blockchain.
As a result, some platforms are trying to create a framework that can be adopted and tweaked, but that ultimately unifies and standardizes the tokens. One such platform is Oxcert which provides a plug and play platform meaning that non-fungible tokens can be developed and verified quicker. This means that companies wishing to develop a non-fungible token do not need to acquire a high level of blockchain understanding, and can still avail themselves of the various benefits.