What are NFTs or Non-Fungible Tokens?

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On Play to Earn we often talk about Non-Fungible Tokens or NFTs. To understand what they are, we need to take a look at the underlying technology. In addition we need to compare the non-fungible token with a fungible token. But let’s start at the word token.

In this article we will mainly be talking about the Ethereum blockchain, but the same goes up for each and every blockchain from Aethernity to Tron, and from Wax to Flow. In essence a token is a piece of data on the blockchain. This piece of data is stored inside a cryptocurrency wallet, which is owned by the person who also has the private keys to that wallet. The owner of that token can either by a business or a person, that doesn’t matter.

Fungible vs Non-fungible

A token can either be fungible or non-fungible. Let’s take a look at the difference between these two. A fungible token can be swapped with another one without any particular changes. Bitcoin is fungible, because every bitcoin has the exact some value. The same can be said about dollars, euros, oil or gold. One bitcoin always has the same market value. There’s no first bitcoin or limited edition 10.000th bitcoin. There’s just bitcoin.

A non-fungible token can’t be swapped one-on-one with another non-fungible token. It represents something unique. That’s why non-fungible tokens can be based compared with rare art, an owned house or a signed mint edition of a certain comic book. This gives non-fungible tokens also an unique value that only represents that one specific token.

For example, every Axie Infinity creature – called an Axie – is an unique non-fungible token on the blockchain. However, every Small Love Potion you earn while playing that game, is a fungible token. Virtual land is League of Kingdoms is represented as an NFT on the blockchain, as it’s an unique piece of land at a particular location. The same can be said about collectible cards for the fantasy football game Sorare. Every card is unique, numbered, and limited in supply.

A non-fungible token or NFT always represents ownership. From that perspective you could say it’s a contract between the game and the gamer, between art and the collector, or between an event and the visitor. This contract states that the owner, as defined by the token, is the only one who has a certain asset. Because of this ownership the gamer can use an in-game item, the collector has 100% ownership over art, or the festival visitor can get access to the event. NFTs are unique.

What does full ownership mean?

Users have complete ownership over every non-fungible token in their wallet. These tokens are basically a contract stating you are the one who owns a certain digital asset inside a game. If the game company behind the game decides to pull the plug on their project, it’s likely that a token becomes useless. That’s one of the problems with blockchain games not running completely on the blockchain. But let’s put those problems aside, and take a look at what you can do with full ownership.

As stated before, every token inside your wallet is yours. Users are free to do anything they want with their tokens. They can use tokenized items inside games or products, and in addition they can sell, trade, borrow, stake or simply showcase them.

As a gamer, this is liberating. You’ve never been able to create value inside a game and move that value into another game. Gathering herbs in World of Warcraft has never enabled you to buy a skin for Fortnite, but with blockchain games this is possible. You can gather resources in League of Kingdoms, sell those resources and use the acquired ETH to buy something completely different. Value from inside a game is able to move into different realms, and that’s all because gamers have full ownership over tokenized digital assets.

How to connect?

You store a non-fungible token inside a cryptocurrency wallet. By connecting this wallet to a game, the token can be used. This connection between the token in your wallet and the game is often done by software wallets, for example Metamask is common and used for different blockchains. By logging into your wallet and approving the connection with a game, the game is capable of reading the contents of your wallet. It will recognize your assets and give you access to specific content. That’s the valuable connection between gaming and tokens.

Some games allow you the create – often called minting – certain fungible or non-fungible tokens. In the role playing game The Six Dragons players can find resources to create unique weapons. The game mints these weapons and stores them as non-fungible tokens in the user’s wallet. These weapons are unique and owned by the player. Nobody else can touch them. In Axie Infinity players earn Small Love Potions (SLP) for their efforts, which is a fungible token.

What’s in the name?

Non-fungible token isn’t a very easy word to say. Above everything is sounds very technical for something that should be super easy. The abbreviation NFT doesn’t do very well as well, but some refer to it as a nifty or multiple nifties. Nifties sounds decent, but maybe we shouldn’t try to invent a new name at all. On Play to Earn I will often refer to non-fungible tokens as digital assets or digital collectibles.

In the end these NFTs represent ownership over digital assets. This can either by an in-game weapon or a piece of art. In addition it could also be a ticket for a cinema or perhaps a subscription for public transit. The usability of NFTs doesn’t end with gaming, it only starts there.

Robert Hoogendoorn avatar
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Robert Hoogendoorn is a gamer and blockchain enthusiast. He got in touch with crypto in 2014, but the fire really lit in 2017. Professionally he's a content optimization expert and worked for press agencies and video production companies, always with a focus on the video games & tech industry. He's a content manager and creator at heart, started the Play to Earn Online Magazine in early 2020.