What are Digital Collectibles? Non-Fungible Tokens (NFTs) and the future of digital ownership

If like a curious Alice you’ve gone down the rabbit hole researching the exciting world of digital collectibles, the chances are you’ve come across the acronym NFT or Non-Fungible Token. You may even have seen the more technical terms (ERC-721, ERC-1155), but more on them later.

Use this article to gain a high-level understanding of what this new technology is, what opportunities it opens up and how it will change the world as we know it.

 

NFT… Wait, what?

In the simplest terms, Non-Fungible Tokens (NFTs) are unique digital items whose ownership and any transfer of ownership is all recorded and managed publicly using a technology called the blockchain (more on that anon).

 

What does ‘fungible’ mean?

First, it’s important to understand the difference between the words ‘fungible’ and ‘non-fungible’ – this helps most people grasp the basics.

Fungible applies to things that can be easily replaced by another of equal value. When you get cash out of an ATM, you don’t read the serial numbers on the paper, you trust that your cash is as good as everyone else’s cash.

Let’s dig into that:

If you give someone a £20 note in exchange for 2x  £10 notes you still have £20.

In the digital economy Bitcoin is fungible in exactly the same way. Still with us? Great.

 

Okay, but what about ‘non-fungible’?

Non-Fungible items, however, can be classed as unique and special – they’re not easily replaced.

We live in a non-fungible world.

 

 

Take this example:

I want to see the new James Bond film. I go to the Odeon cinema website and buy a ticket. But, somehow, I mistakenly turn up at a Cineworld cinema. Oops. They’re also showing the James Bond film and at the same time, but my ticket is no good and they won’t accept it.

That’s because the ticket is non-fungible and I’m asking a totally different company to accept it. We live in a non-fungible world.

 

What’s this got to do with digital collectibles?

So, that’s non-fungible sorted, but where does the word ‘token’ come into play? This is where the aforementioned blockchain becomes a game-changer, quite literally. In our industry, non-fungible digital items are already commonplace – people have spent small fortunes on micropayments in games like Fortnite to buy limited edition swag and weaponry.

While those items are non-fungible, they can’t be used outside the game or sold on to others. In short, despite paying for the items, the player never owns them in any real sense – at least not outside of the game itself. The game’s publisher has full control over the asset and its distribution at all times.

The blockchain, however, allows developers to add an extra layer to their in-game digital assets that effectively hands ownership and management permission to the end-user. This process is known as ‘tokenization’ and turns the item into an NFT (using the ERC-721 standard, which we cover in more detail here), at which point developers can also bestow unique information that makes the object extremely rare and desirable, like a limited-edition or one-of-a-kind weapon.

In the context of games, NFTs give players real ownership over their items, allowing them to monetize the rare assets they earn or buy in-game on open marketplaces. You see this in action in our own game Reality Clash; or in the likes of CryptoKitties. But NFTs can equally be used in non-game environments, such as for digital NBA and NFL trading cards, real-world property or works of art.

Pretty cool, huh?