Non-Fungible Tokens

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In the field of economics fungibility is the property of items that makes their unit value interchangeable.

Currency is a fungible good. A ten dollar bill is interchangeable with an other ten dollar bill.Two box of honeycrisp apples has the same value and can be interchanged. Fungible goods are also divisible. Meaning you can send a fraction of the item. If you pay an item with a ten dollar bill you can get change which has a fraction value of the the bill.

A rule of thumb is that any item that is sold by number or weight is fungible.

The same concept exists in the world of cryptocurrencies. We don’t care which specific bitcoin or Ethereum we have. We only care about the unit amount.

Non-fungible goods are unique. Example of non-fungible goods is property or art work. A painting by Van Gogh is unique and cannot be exchanged with another painting. Its physical characteristic makes is unique. Non-fungible tokens are also non divisible and must be sold and bought as a whole. We cannot buy a quarter of a painting or sell only a page of a comic book. Splitting the asset would destroy the value of the asset. We rip of a page from a rate comic book that comic book has not value. Irrespective of its rarity.

The same concept can be applied to the world of cryptocurrencies where we can create a non-fungible token. Each token has a unique value and the token cannot be divided and must be bought or sold whole.

The most successful project based on non-fungible tokens was Cryptokitties. Cryptokitties is a game driven on the Ethereum blockchain where the player can breed and collect virtual kittens. Each kitten is unique in its properties and its a one of a kind and cannot be replicated, taken away or destroyed.

The project was so successful that it hit sales of 12 million with the a virtual kitten being sold at 120K dollars. Project generated so much transactions that its also impacted the performance of the Ethereum blockchain.

In the Ethereum blockchain non-fungible tokens are based on ERC-721. Fungible tokens are typically created using ERC-20 which is the currently the standard for tokens in the Ethereum blockchain. Like ERC-20, ERC-721 defines an interface of attributes and functions that the smart contract must adhere to. So the token can be managed, owned and traded. The following is the interface of ERC-721.

A non-fungible token can be used to represent any asset like property, art and collectables. The advantage of using non-fungible tokens is that is gives full traceability of ownership of the particular asset. Ownership is forever recorded on the blockchain eliminating any malicious temperating of such data.

ERC-721 is formalised as a v1 spec and is now supported and endorsed by a large number of projects in the cryptosystem. Such as

Ox. Ox is an open protocol that enables the peer to peer exchange of assets on the Ethereum blockchain.

Dotlicense. Dotlicense which is software license framework on the blockchain.

and several artwork marketplaces like knownorigin.io, rarebits, Actionity and emoon.io

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