In the bustling city of London, Icar’s journey into the world of Non-Fungible Tokens (NFTs¹) had begun. As autumn leaves fell, he was about to dive into a space that blended the digital world with art, ownership, and uniqueness in a way that he had never seen before.
Being unique digital assets, NFTs could represent digital art, virtual real estate, and even virtual pets. The very idea intrigued him, and he couldn’t resist the allure to own a part of this digital reality. He started by purchasing an artwork by a fairly known digital artist. The transaction was smooth, and he was now the owner of a unique piece of digital art. His journey into the NFT space had officially begun.
Despite the chilling winter breeze in London, the atmosphere in Icar’s apartment was far from cold. His journey into the world of NFTs had only just begun. After experiencing the thrill of owning digital art, virtual real estate, and even virtual pets, he was ready to delve deeper.
Unlike cryptocurrencies such as Bitcoin and Ethereum, which are fungible and identical to each other, NFTs are unique digital assets. This uniqueness can be attributed to the data stored in them, making each NFT distinct. Therefore, these tokens cannot be directly replaced by any other token – they are ‘non-fungible’.
NFTs can represent digital files, such as art, music, games, and other forms of creative output. As a digital artist himself, Icar was particularly interested in this aspect. He began to explore various NFT marketplaces, and even considered minting his own NFTs².
In his journey of understanding NFTs, Icar came across ERC-721³, a free and open standard on Ethereum’s blockchain that describes how to build non-fungible or unique tokens. He realized that it was this standard that allowed for the creation of unique tokens that could represent ownership over digital or physical assets.
NFTs opened a new avenue for creators like Icar. They could now mint their digital artworks as tokens on the blockchain, providing provable ownership of their work and a new way to monetize their creations.
ERC-721 and Beyond: A Closer Look at Token Standards on Ethereum
ERC-721 is an open standard on Ethereum’s blockchain that allows for the creation of non-fungible tokens (NFTs). It’s crucial to understand that ‘ERC’ stands for Ethereum Request for Comments, while ‘721’ is the unique proposal identifier. The ‘free and open standard’ characteristic refers to how this specific proposal for creating NFTs on Ethereum is open for public use and alteration.
But what does it mean for a token to be ‘non-fungible’? The term ‘fungible’ is used in economics and trade to describe something that can be replaced by something identical, like currencies – for instance, one Bitcoin is always equal to another Bitcoin. However, ‘non-fungible’ tokens are the exact opposite. They represent unique, irreplaceable items or assets. In the world of NFTs, each token, each digital asset is unique, much like a piece of art or a collector’s item.
On the Ethereum blockchain, each NFT is a smart contract using the ERC-721 standard, which ensures its uniqueness and ownership. The standard outlines a set of common rules that all NFTs on Ethereum must follow, allowing them to interact seamlessly with other tokens and platforms in the Ethereum ecosystem.
Apart from ERC-721, another noteworthy token standard is the ERC-1155⁴, sometimes referred to as the multi-token standard. This Ethereum token standard allows a single contract to produce both fungible (identical) and non-fungible (unique) tokens. This can be particularly useful in gaming platforms where one might need different types of tokens for different purposes..
Emerging Concepts in the NFT Space: Soul-Bounded Tokens
Another emerging concept in the NFT space is that of the Soul-Bounded Token⁵, a new kind of NFT that is ‘bound’ to a specific address or owner and cannot be transferred or sold. This represents a significant shift in how ownership and property rights are conceptualized in the digital realm.
In the end, Icar could see that the blockchain and cryptocurrencies were not just about finance and wealth. They were also about enabling creators, enhancing digital ownership, and fostering new forms of artistic expression and value. It was clear to him that NFTs were more than just a trend – they were here to stay and would continue to shape the digital landscape in the years to come.
Chapter 6 Note:
- NFTs (Non-Fungible Tokens): These are unique digital assets that can represent ownership over digital or physical items.
- Minting NFTs: This refers to the process of creating a new non-fungible token on the blockchain.
- ERC-721: This is a free and open standard on Ethereum’s blockchain that describes how to build non-fungible or unique tokens.
- ERC-1155: This is a token standard on Ethereum that allows for a single contract to produce both fungible and non-fungible tokens.
- Soul-Bounded Token: This refers to a new kind of NFT that is ‘bound’ to a specific address or owner and cannot be transferred or sold.