Non-Fungible Tokens: How feasible are they?
Although
cryptocurrencies are the most common, most often mentioned traded product in
the blockchain, they’re far from being the only type of token you can find.
Cryptocurrencies are common because they can be used as currency, since they’re
fungible and divisible – but as the technology has grown, another type of token
has become common in certain environments: Non-fungible tokens.
What is a non-fungible token?
Non-fungible tokens, or good, are those that can’t be exchanged for other tokens of exactly
the same value. Cryptocurrencies are fungible because currencies themselves are
fungible. You could lend a friend 1BTC today so he can make a purchase, and he
can pay it back next week.
The BTC you get back won’t be the exact same token,
but the value and its properties will be the same. Cryptocurrency tokens, thus,
are fungible, just as fiat currencies are.
Non-fungible
tokens don’t have this property because, unlike cryptocurrency tokens, they are
unique. Each token has properties that set it apart from others, and these
properties will greatly affect the token’s value.
For example, in
early 2018 there was a short craze over a project called Cryptokitties. This
project consisted of collectible kitten images where no two tokens were the
same. They were produced on the blockchain using a hashing algorithm that
effectively made it impossible to clone, or “pirate” a cryptokitty.
The project
caught wind, and soon enough some of these kitties were selling for hundreds,
or thousands, of dollars – with the highest one being sold for $120,000. The
craze talked to our own attitude towards collecting, mixed with the rarity and
uniqueness of these kitties.
What can they be used for?
It isn’t
difficult to notice the parallels that cryptokitties have with baseball cards:
Printed pieces of cardboard featuring a picture of a baseball player each. Most
cards aren’t worth much, but there are a handful of highly sought-after ,
collector cards that can cost hundreds of thousands of dollars.
The parallel is
there because non-fungible tokens have so far been most famously used precisely
as collectors items, an equivalent to baseball cards. And they could be used
for more than just digital kittens, too – virtual versions of card games like
Magic:
The Gathering and Yu-Gi-Oh stand a chance to flourish under this
environment, where rarity affects price and free trade among members of the
blockchain is a thing. It would, in fact, create an exact digital version of
the print formats of these games.
But there’s
more. The entertainment and software industries could well overhaul their
handling of digital content by converting to non-fungible crypto tokens.
Currently, when you purchase a film, you get a license: That is, a permit to
access it. Said licenses are non-transferable, so they can’t be resold, and
once they’re purchased they become essentially worthless.
Going for
non-fungible tokens would allow companies to create transferable licenses that
can still be tracked – and using smart contracts, the tokens could even be
setup so that whenever they are sold, a percentage of the price goes back to
the creator.
This may sound
silly if you think about, say, Marvel films, since it’s impossible to think of
Disney going out of business anytime soon and their digital films becoming
impossible to purchase. But not all studios are Disney, and not all
entertainment industries are into films.
One of the
industries that could make its users’ lives much easier is the video game
industry. Video game companies often go under, and their titles become
impossible to purchase – with however few redeemable copies left rising in
value.
Some of the titles that have gone out of sale on the Steam platform can
fetch hundreds of dollars for unredeemed keys due to their rarity – and because
video game collecting is a thing.
By creating
non-fungible tokens instead of using the current license method, collecting
digital items will obtain the same legitimacy as collecting physical ones.
More
importantly, those interested in getting films, music, or software that is no
longer being sold on a first-party basis will get a chance at obtaining legit
copies rather than being forced into piracy.
Will non-fungible tokens succeed?
It’s hard to tell.
The sad truth is that, while converting digital licenses to said tokens would
be great for the users, companies have few reasons to do so – particularly
large ones.
Most companies already fight the secondhand market tooth and nail,
and backing a digital one will seem horrible to them, even when said market
could give them a cut.
Still, many
systems we use today would have seemed impossible a couple decades ago. While
nobody should bet on this today unless they are proposing a business; even
investing in them these days might not be a great idea. Non-fungible tokens
might well become the future of collectibles.
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