You’re a proud cryptocurrency owner, thanks to your stellar crypto gambling skills on the best crypto casino.
So, naturally, you’ll want to know all there is to know about fungible and non-fungible tokens, or NFTs, and how they are applied to gambling and smart contracts. Luckily for you, this blog is here to give you the low-down on all the important buzz terms.
To provide you with some background knowledge, we look at the difference between a fungible and non-fungible token, also known as an NFT.
Then we will briefly consider some of the features of the largest NFT standards, before we explore how to trade and buy them. Ending off, we will discuss the broader significance of NFTs in the blockchain world.
First, What Is A Token?
In the broader context of things, a token is a tangible representation of something intangible, whether that is a quality, fact, accomplishment, and so on.
To explain this more clearly, here are two examples to consider. A token could be:
- a driver’s license that represents the training and skills you acquired before being allowed to drive in your region.
- a student card that represents the fact that you are a registered student at a learning institution.
Tokens In A Blockchain Context
Within a particular crypto ecosystem or blockchain, a token can represent just about anything. It could be a stake, value, or even a voting right. And it doesn’t have to represent just one thing either; it can take on multiple roles.
Examples could include:
- currency tokens that are used for transacting within a blockchain ecosystem.
- a toll to represent a gateway to a decentralized application (Dapp) within a blockchain where you need the token to gain access.
- ownership token that denotes ownership over something unique, like virtual collectibles.
- voting rights, as found on the EOS network, where token ownership gives you the authority to vote for block producers.
- a value exchange where tokens represent the value of something, allowing for an internal ecosystem to be nurtured within the blockchain application.
The Difference Between Fungible and Non-Fungible
Fungibility is all about how interchangeable one asset is with another asset of the same kind. Money is fungible, consider this example: if you borrow $10 from your brother, you don’t have to give him back the original $10 note. Any $10 will do.
In this sense, dollars are fungible. They can be interchanged for one another without this exchange influencing their value.
Now let’s consider a non-fungible asset. Imagine your sister borrows your laptop for an evening and gives you back a different one when she is done. You would have every right to be upset because this is an example of a non-fungible asset.
You cannot exchange one laptop for another without fundamentally altering its value. In this example, the laptop is a collectible asset, and we can classify all collectible assets as non-fungible.
Fungible vs Non-Fungible Tokens
So, now we better understand what a token is and what fungible and non-fungible means. Let’s directly compare a fungible token with an NFT using the following characteristics:
- Interchangeability: you can exchange a fungible token for any other token of the same kind, just as you can use any $10 bill to replace a borrowed $10.
An NTF, on the other hand, cannot be exchanged for another token of the same kind. If you lend someone an NTF, they must return the SAME token to you to preserve its value. Just like in the laptop example.
- Uniqueness: fungible tokens of the same kind are all identical to one another. In other words, fungible tokens are uniform.
An NFT is unique to all other tokens of the same kind, and this uniqueness contributes to its value.
- Divisibility: a fungible token can be divided into smaller units that add up to the same value. Like how you could pay back $10 with two $5 bills.
An NFT is non-divisible. The elementary unit (the smallest possible unit) is one token.
- Token standards: fungible tokens such as OMG, SNC, or TRX are issued on the Ethereum blockchain using the ERC-20 standard.
NFT’s on the other hand, are issued on the Ethereum blockchain using the ERC-721 standard.
The Major Standards: ERC-20 and ERC-721
You may have heard of standards. In really simple terms, these are sets of rules governing a token’s supporting architecture to ensure that it can interact with other tokens.
An NFT is built on the ERC-721 standard. But, this standard is very similar to the ERC-20 standard. The design similarities were deliberate to allow developers to easily transition to the new standard while also allowing users to store NFTs in regular wallets for trade on major exchanges.
We will quickly look at the original ERC-20 standard as it has similar underlying elements to ERC-721.
This particular standard is made up of various elements, including:
In addition to these they can also have a token name, a token symbol, and an associated decimal up to 18, as seen in the Ethereum ecosystem.
An NFT, on the other hand, is created using the ERC-721 standard. This uses two additional elements to keep track of the following functions:
- ownerOf function: this function queries the token owner
- transferFrom function: this function transfers ownership of a token
Other NFT Blockchains
While Ethereum’s ERC-721 standard was the original NFT producer, other blockchains have started producing their own standards. NEO, EOS, and TRONS are the next largest platforms to have jumped on this technology.
When you buy fungible tokens such as ERC-20 tokens, two things need to be included in the smart contract.
One is the right of ownership.
The other is the amount that each party has after the transaction goes through.
With an NFT, you must also specify the token’s unique ownership details, as each is different and holds its own individual value.
A transfer of ERC-721 deals with two unique events, which are fired whenever called upon by a contract. This, in turn, causes external programs to execute the necessary code. These events include:
1) Transfer event: fired whenever a token changes owners. This event details which account sent the token, which received it, and the exact token that was transferred (token ID).
2) Approval event: this is the second event that is fired. It details the account that currently owns the token, the account with permission to hold the token after the transfer event, and the unique token ID.
Buying and Trading Non-Fungible Tokens
- Digital Collectibles: these acquire value because of their scarcity. The largest digital collectible company creating NFTs today is Terra Virtua, which creates collectibles inspired by big brands and Hollywood.
- Digital Art: the leading distributor of digital art using NFT’s is SuperRare, which has traded over 11,000 artworks.
- Gaming NFT’s: Decentraland is the big name here, trading in virtual goods such as unique gaming skins.
- NFTs and DeFi (Decentralised Finance): Aavegotchi is an experimental start-up using NFTs to create a DeFi money market.
The Significance Of The NFT
Right now, non-fungible blockchain standards are still in their infancy. But once the technology truly takes off, it will mean that any type of asset can become tokenized for representation on a blockchain.
Blockchain technology is only going to become more prevalent in the future due to its many advantages. Above all though, blockchains are lauded for their decentralized nature and the security and immutability with which transactions can occur. Now apply those characteristics, which helped cryptocurrencies flourish today, to almost any other kind of asset you can think of.
Any unique, digital asset could be differentiated from others, and in doing so, the value or scarcity of the asset could be proven. This is likely to take off in the digital artwork industry, for example.
Things like degree certificates, ownership licenses, and driver’s licenses could be issued on a blockchain network. The result would be a digital document that could be recognized and validated anywhere in the world.
NFT smart contracts allow for detailed characteristics of the assets to be included over and above owner identity, such as rich metadata or file links.
In gambling, non-fungible tokens are prompting rapid data processing and asset digitization. They are marking unique assets that aren’t recognized in disparate systems, giving gamers more power and ownership.
When you really think about it, the possibilities are endless with this kind of technology entering the scene.
Blockchain technology is more than likely going to play a massive role in the future. We think of blockchain technology mainly in the light of fungible cryptocurrencies. But imagine the possibilities associated with tokenized non-fungible assets.
Tokens can be created to represent not just currencies but also other types of assets.
NFTs are one of the new frontiers of blockchain technology, and as such, they deserve our attention!