Basic NFT Terms & Definitions You Should Know
Non Fungible Token (NFT)
A non-fungible token (NFT) is a type of cryptographic token that represents a unique asset. NFTs are tokenized versions of digital or real-world assets. They function as verifiable proofs of authenticity and ownership within a blockchain network. NFTs are not interchangeable with each other and introduce scarcity to the digital world.
Fungible / Fungibility
Refers to the property of an asset whose individual units are interchangeable and essentially indistinguishable from each other. For example, all fiat currencies are fungible. To act as a medium of exchange, each individual unit must be interchangeable with any other equivalent individual unit. A one-dollar bill is interchangeable with any other genuine one-dollar bill.
In a few words, a blockchain is a digital ever-growing list of data records. Such a list is comprised of many blocks of data, which are organized in chronological order and are linked and secured by cryptographic proofs.
In regards to NFTS the Blockchain is different from the NFT platform. Think of the Blockchain as the highway that the NFT platform is built on. Good Platforms should be DApps or Decentralized applications.
The platforms that are built as centralized platforms in many ways defeat the purpose of blockchain technology because a centralized party controls and gatekeeps that platform.
DApps - Decentralized App
Decentralized Applications (DApps) are applications that run on a distributed computing system, that is, a blockchain network. While there are various ways of defining a DApp, they are usually described as applications that have the following characteristics:
Open Source – The source code is intentionally made available to the public, meaning that anyone is able to verify, use, copy, and modify the code.
Decentralized – Since DApps run on blockchain networks, they are not controlled by a single entity or authority. Instead, they are maintained by multiple users (or nodes).
ERC-20 is a technical standard used to issue and implement tokens on the Ethereum blockchain. It was proposed in November 2015 by Ethereum developer Fabian Vogelsteller. The standard describes a common set of rules that should be followed for a token to function properly within the Ethereum ecosystem. Therefore, ERC-20 should not be considered as a piece of code or software. Instead, it may be described as a technical guideline or specification
Think of this as a cryptocurrency token on the Ethereum network. Many NFT platforms have their own ERC-20 Tokens.
ERC-721 tokens differ to ERC-20 tokens in the sense that ERC-721 tokens are non-fungible. This means that each token is unique and as a result, not interchangeable.
A popular Ethereum decentralized application, Cryptokitties, utilized ERC-721 to create unique digital collectibles in the form of kitties.
Each different kitten was worth a different amount on the marketplace, dictated by the users of the platform. Each different kitten commands a different price, and as a result, each token needs to be unique.
The creation of blockchain based non-fungible tokens allows for
- physical property (houses, artwork, and vehicles)
- Virtual Collectibles (Cryptokitties, rare pepes, collectible cards)
- Assets with negative value (loans)
The ERC-721 standard is great for tokenizing and creating unique assets that can be transferred from one wallet to another. However, a collection of ERC-721 tokens can prove slow and inefficient, for instance, when transferring multiple armor pieces in a game for a particular character. This is where ERC-1155 comes in, and can offer unique digital NFTs, that allow batch transfers of multiple tokens at once, and at a much faster speed than an ERC-721. ERC-1155 tokens are often described as a “next-generation multi-token standard”, and the focus here is truly a “multi-token” approach. ERC-1155 is developed by Enjin, and supports both non-fungible tokens as well as fungible tokens.