How does an NFT work? (Non-Fungible Tokens)
Non-Fungible Tokens (NFTs) are one of the most exciting developments in the industry. This is because they allow for more unique and personal ownership of digital assets, as well as some other really cool features that we’ll discuss in this article.
What is a Non-Fungible Token (NFT)?
In order to understand NFTs, it’s important to first define what a “fungible” token is. In simple terms, fungibility means that if you have 10 apples and I give you 5 more apples, then there’s no difference between mine and yours — our apple piles are identical. But with an NFT, each one is its own thing: every single time someone trades a token on an open market place like OPSkins or OpenSea, the tokens are being exchanged indivisibly, just like how you can’t have half a Bitcoin. In this way, transferring an NFT is different from traditional digital or physical asset ownership because they are each unique and nobody else owns the same token as you do.
As for what you could buy with them, well… anything really. The best example is Cryptokitties.com, a website where users can buy and sell cartoon cats as NFTs. But what makes a Cryptokitty valuable? Well, it all comes down to the community’s perception of value: if enough people start trading for these virtual cats, then its perceived value will increase until one day it may be worth $10,000 or even $100,000.
How does an NFT work?
Now that we’ve covered NFTs in a nutshell, it’s important to understand how they work. In order for an NFT to be created and tradeable on an open marketplace like OpenSea or OPSkins, it must be represented by a token — so being able to create your own tokens is a big part of this equation. Essentially, these tokens contain the metadata of the Non-Fungible Token — so if you want a certain level of control over what you’re buying or selling on any given platform, then it’s vital that the platform have a robust API that uses this metadata.
NFTs can’t really be contained arbitrarily within one digital location: they’re more fluid than that. So while having a website that hosts the NFTs’ data is all well and good, it may not be enough by itself. Each platform must also provide its own API to transfer these tokens to other users — without this API there would be no way for players to trade their game items on the platform.
Where would I use an non-fungible token?
Now that you have a better understanding of what NFTs are, the question then becomes: where can they be used? One application we’ve seen is using them to buy and sell digital game items. A perfect example of this is the new Dota 2 trading card game (dubbed Frosthaven) which uses ERC-1155 tokens to represent each one of its cards. This allows players to buy, sell and trade each card on an open marketplace — ensuring they have the freedom to do what they want with their in-game items.
Another potential application is digital real estate or land ownership: imagine if you became a homeowner simply by purchasing a few tokens that represented your house off of an open market! The level of ease, personalization and uniqueness that NFTs bring to the table is truly unparalleled.
Here’s how to buy and sell an NFT on open token markets
Like any other digital asset, you can buy and sell NFTs directly with other users using the OPSkins Marketplace or OpenSea. The whole process is pretty straightforward: just deposit some money into your account, purchase a token from someone else, and you’re done. The transfer of ownership is immediate and it’s all tracked via the blockchain so there’s no concern about being scammed out of your money or NFT.
How does a Cryptokitty work?
Now that we’ve covered what an NFT is, let’s talk about how they work on a technical level. In a nutshell, NFTs are Crypto-collectibles that belong to a unique owner who keeps them on the immutable Ethereum blockchain. Like all ERC-721 tokens, the entire collection lives as an entry in the Ethereum state trie which is basically a storage space for individual records. In this case those “records” are cryptographically owned by a single person and nobody else can own the same token. This is what makes NFTs more fun than just your regular ERC-20 tokens: they’re not fungible, which gives each of them their own unique value.
How do you buy or sell Cryptokitties?
CryptoKitties is a game where the value of your assets (the cartoon cats) depends on how much other people are willing to trade for them. The game was released in late November 2017 and became popular pretty quickly, which means that the current price of any given cat has increased day-over-day simply because more people want to buy them. At this point in time, there are no easy ways to buy Cryptokitties outside of the game itself.
The good news is that, just like any other ERC-721 token, Cryptokitty tokens can be bought or sold immediately on OpenSea after they’ve been acquired via the CryptoKitties marketplace. And it doesn’t matter how you acquired them: all that matters is that the ERC-721 tokens are yours and can be traded on OpenSea.
Every Cryptokitty token has a “genetic sequence” associated with it which is basically a QR code and some metadata representing your cartoon cat’s traits (like hair color or eye shape). Other players who purchase the tokens can look up this QR code to immediately see your cat’s unique attributes. This “genetic sequence” is derived from the token sale address which means that every Cryptokitty is 100% owned by the person who bought it and nobody else.
I hope you’ll join me on my Discord server https://discord.gg/SEK7FfudgW where we can chat about art, crypto, and everything in between. You can also find links to my OpenSea collections there. Thanks for reading!
