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Beyond gaming: An introduction to non-fungible tokens (NFTs)

In this article, we provide an introduction to the powerful non-fungible token asset class, explaining what it is and its implications for the wider world

Non-fungible tokens (NFTs) are an essential concept to blockchain gaming. To truly understand the possibilities of blockchain gaming, one must first understand the relevance of NFTs within the space.

The gaming industry is now worth a staggering £5.7 billion – which is more than the film and music industries combined.

If the crypto and blockchain space could tap into just one-fifth of this market, then it could add around £1 billion to the market valuation.

These figures alone highlight how significant blockchain gaming could become in the future.

What is a non-fungible token?

An NFT can be thought of as simply a crypto collectible – an item you obtain within a video game.

There are typically meta descriptions or meta tags attached to an NFT to help ensure it is unique and identifiable.

The key difference between an NFT and a regular cryptocurrency token is ‘fungibility’.

If a coin or token is fungible, it means they can be exchanged for another token or coin. A non-fungible token is precisely the opposite – it cannot be exchanged.

This in turn creates intrinsic value through its limited supply. In the scope of gaming, a limited supply creates scarcity, thereby ramping up the value of certain in-game items.

In a decentralised marketplace – one that is not controlled by a governing entity – this would allow players to freely trade rare items much like trading crypto on an exchange.

This drastically alters the dynamic of trading inside of a video game, particularly when blockchain technology is powering the marketplace.

A blockchain is a type of distributed ledger technology (DLT) which records financial transactions and other sensitive information. It is also immutable, which means it cannot be retroactively changed.

The benefit for NFTs is that blockchain technology enables people to truly own an item – it cannot be stolen or duplicated with ease.

Another quintessential aspect to NFTs is that they typically are non-divisible. They have to be sold in their entirety. Whereas with cryptocurrency, for example Bitcoin, you could purchase a fraction of one Bitcoin – you cannot buy a fraction of an NFT.

Once again this adds to an NFTs intrinsic value because it cannot be accumulated over time – it must be acquired as a whole token.

What is behind an NFT?

NFTs by design are not difficult to create. They only possess a few lines of code, meaning anybody with basic coding knowledge could, in theory, create one.

However, this is the easy part – the marketing and selling of an NFT is much more difficult to manage. This is because for an NFT to have value, it needs a purpose.

Without a purpose, it does not have demand, and therefore there is no market for it.

Popular NFT standards

NFTs are most commonly built on the ERC-721 and ERC-1155 Ethereum standards.

ERC-721 is the most commonly used standard today. However, Enjin has been ushering in the era of ERC-1155 with its partnership with Samsung.

It is also important to note that ERC-721 and ERC-1155 are compatible with each other.

The ERC-721 standard has the ability to issue individual assets from a contract – effectively meaning if somebody owned a rare sword in a role-playing game (RPG), they could sell that sword.

The ERC-1155 standard expands this concept by offering the ability to issue mixed fungible and non-fungible assets with a single contract.

This means that instead of using several ERC-721 contracts to issue multiple items, this can now all be done through a single ERC-1155 contract.

The ERC-1155 standard also differs in another significant way – it has the ability to issue fractional NFTs.

This means that, in theory, if you applied an ERC-1155 standard to Call of Duty, you could sell half of a weapon.

This is how the concept of NFTs becomes obscured with the ERC-1155 standard because suddenly the NFT can be sold fractionally.

In the scope of gaming, this becomes difficult to comprehend, but remember that applying the concept of NFTs only to gaming is a narrow train of thought.

The key point to remember between ERC-721 and ERC-1155 is that the ERC-1155 standard has the ability to issue mixed fungible and non-fungible tokens at a high volume, whereas the ERC-721 is limited to issuing a single NFT.

However, this does not mean the ERC-721 standard is obsolete – it has its own uses in the world of NFTs.

Other NFT standards in development

There are also other NFT standards in development. For example, there is one standard called ‘RGB‘ which is a new non-fungible Lightning standard for the Lightning Network. RGB is still in its early days and might not have tangible benefits at present, but it could be something interesting moving forward.

There is also Wax – which is working on the concept of gambling ‘skins’. A skin is simply a costume or outfit equipped to video game characters that alters their aesthetic.

Collecting rare skins is a popular aspect of gaming, and as such there is a niche market for Wax to exploit.

Possible applications for NFTs 

Coin Rivet recently attended the CoinFest UK event in Manchester. While there, we attended a crypto collectibles workshop hosted by BlockRocket.

BlockRocket has developed a marketplace for selling NFTs. The workshop provided a useful introduction to NFTs and their applications.

Artwork

One example the company illustrated was how NFTs can prove provenance. Artwork is often contested in wills, particularly artwork with historical significance.

In times of war, artwork could be stolen – which creates a muddled mess when trying to return the artwork to its rightful owner or work out its origins for authentication purposes.

By embedding artwork with an NFT, it suddenly has a unique and extremely identifiable tag. Being stored on the blockchain enables a seamless and easy method to prove provenance.

In theory, and with the right application, no longer would there need to be lengthy legal disputes over who is the rightful owner because the technology could solve the issue easily.

Sports 

When attending a football match in the UK, fans can earn a stamp on their season ticket to prove they attended a game.

However, if NFTs were implemented, this dynamic could be altered. It is easy to lend or rent a season ticket to a family member, friend, or perhaps someone looking to attend a game when you cannot go.

This allows for a stamp to be collected on the season ticket even if the owner didn’t attend.

By applying an NFT-type system, suddenly you could have the NFT attached to the person who actually attended the game. Football clubs could then implement a loyalty service.

If you collect every NFT for the season, there could be a reward such as VIP access or meeting the football team. This isn’t possible with stamps on a season ticket because it is so easy to obtain the stamps.

Louis Vuitton

Recent reports have suggested that Louis Vuitton is implementing certificates of authenticity with its handbags alongside tracking the supply chain of products on a blockchain.

A certificate of authenticity is fundamentally an NFT. It is unique, limited, and to some extent cryptographic if it is traceable on a blockchain.

If the rumours are true, the primary purpose for such a venture is to reduce the amount of fraudulent recreations of the brand’s signature products.

With NFTs and blockchain technology, fakes can be easily identified and furthermore theft would be reduced because stolen bags cannot be resold since the buyer will be able to check to see whether the seller is the rightful owner.

Investors 

This example is tied to the ERC-1155 standard. Having the ability to issue multiple assets in a single contract while having a mix of fungible and non-fungible tokens is a remarkable tool.

This in theory could enable opportunities that are currently not feasible in today’s financial system. For example, let’s say you are an investor looking to invest in farmers, but you are offered 1,000 farmers to choose from.

You would need to assess a series of factors to determine which farmer to invest in, but even then there is substantial risk. There are a wide range of factors that could result in a loss, such as bad weather leading to a poor yield of crops.

You’re looking to front £1,000 and make a profit of £100. Instead of figuring out which farmer will net you a profit, you could use an ERC-1155 NFT to invest in all of them. This helps mitigate risk.

This is an interesting application of NFTs and how the market could operate.

NFTs are a powerful asset class

Hopefully this introduction to non-fungible tokens and their applications has helped you understand just how truly remarkable this asset class could become with the right applications.

Fundamentally, NFTs were built for gaming, yet they can be extended to benefit artists, sports fans, investors, and brands.

The crypto space is still in its infancy – all technology takes time to mature, and given time, the NFT space could completely disrupt industries globally.

Interested in reading more about NFTs and blockchain gaming standards? Discover more about how Enjin is set to unleash the ERC-1155 standard for blockchain gaming assets.

 

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