We will talk about Non-fungible tokens, or NFT for short today. It is another very popular topic besides DeFi recently in the crypto industry. However, NFT is not new. You may have heard of digital collectibles like CryptoKitties, which is a type of NFT. What is the definition of NFT and why is it worth collecting?
Let’s talk about what Fungible is. For example, if I have one hundred dollars, you want to exchange it for another 100 dollars. It makes no difference to me. So the US dollar is fungible. It can also be said that if an item is replaceable, it means that there is something exactly like it in the world. When it comes to the field of cryptocurrency, it is also true for ETH, BTC, and most of the major cryptocurrencies. My ETH is no different from yours.
What about Non-Fungible? If something is unique in the world, it is non-fungible. Many things are actually irreplaceable such as some collections, such as Picasso's paintings, or train and plane tickets. The reason why crypto cats have collection value is that each cat is different. The look is different and the price is different.
Therefore, NFT is different from Bitcoin and Ethereum, and each token is unique.
When it comes to cryptocurrency, NFT requires to be realized by smart contracts, such as ERC721 on Ethereum.
The token of ERC20 is a fungible token, and every token issued in the same contract is the same. But ERC721 is a set of standards for issuing NFTs, and each token is different. ERC721 allows us to hold or trade NFT. NFT is unique because each token carries some unique data. For example, the token corresponding to each crypto cat is accompanied by the cat's DNA information. There are also other contract standards for issuing NFTs, such as ERC1155, which have been improved on the basis of ERC721.
So why is there a set of standards for issuing NFTs? In fact, if you don’t follow the standards, you can send NFTs on your own chain and follow your own standards. But from the user's point of view, if you want to hold ten NFTs at the same time, you may have to install ten apps. With the standard, the token can be stored in the same wallet making it easy for transactions.
ERC1155 is an NFT asset agreement proposed by Enjin suitable for gaming scenarios. It differs from ERC721 mainly in the following three points:
Any type of NFT asset can be issued in the same contract and multiple assets of different types can be packaged and traded. This greatly saves users' handling fees when conducting asset transactions and optimizes the experience.
FT and NFT can be simultaneously characterized through ID split. This is more useful in game scenarios, such as for some consumables in the game, which should be fungible.
Removed the NAME and SYMBOL fields in the metadata, leaving only the ID and URI. This reduces the description ability of ERC1155 itself and transfers the power to describe assets to the upper layer. DApp can customize the logic of URI fields as needed. For game scenarios, it is worthwhile to sacrifice decentralization in exchange for convenience and scalability, which allows developers to reuse NFT props for different business scenarios.
Let's talk about the application of NFT. The data brought by the blockchain cannot be tampered with. All NFTs can be transacted safely, but what practical use does NFT have?
The first industry is digital collectibles. For example, a crypto cat, a piece of equipment in a video game, or a piece of art. NFT can correspond to all unique digital collections and can guarantee that this collection will always belong to someone.
Another direction is to connect NFT to the existence of the physical world such as an artwork, a car, or even a person. Just like a house needs a deed, the ownership of unique physical assets can also be embodied by NFT. In this way, physical assets are digitized and can be easily exchanged.
How to use NFT correctly? We believe that the concept of layering should be followed: at the bottom layer of the data structure, the NFT should be immutable-once issued, it cannot be changed to ensure the security of the asset itself. At the application layer, the logic of the NFT is mainly defined. This set of identification logic can be centralized, which is understandable because it constitutes different application scenarios of the same NFT to achieve asset reuse.