CryptoKitties, the first wildly popular blockchain game, is also notable because it marked the emergence of a new token, ERC-721, which allows developers to create non-fungible tokens. Because non-fungible tokens allow for specific objects with distinct values to be linked to tokens, this opens a new range of opportunities for recording and storing unique assets on the blockchain.
What are non-fungible tokens?
Standard fungible tokens like Bitcoin or Ether are like cash. They have a consistent single-unit value that will always be equal to any other single unit of the same token. In contrast, non-fungible tokens such as ERC-721 are more like diamonds. They record a range of extra parameters associated with unique assets, and allow them to be priced accordingly.
How do non-fungible tokens work?
Standard tokens are associated with only basic attributes: name, balance, token supply, and symbol. In addition to this basic information, ERC-721 tokens include rich metadata about the asset and information about ownership. These details, authenticated on the blockchain, have the potential to add value because they provide a degree of confidence regarding the legitimacy and provenance of a given asset. Collectible tokens stored on the blockchain also provide an element of security: in many online games, virtual items earned through play or trading are ultimately managed by the company running the game. If the company ceases operations, players’ assets disappear.
How will tokens work with purely digital collectibles?
A good example of collectible tokens for digital assets is MLB Crypto Baseball. Launched in August 2018, this game turns every active MLB player into a cryptocurrency, represented by blockchain-based collectibles. Batches of players were released into the market on a predetermined schedule, with pricing determined by how quickly or if the previous batch sold out. Star players are represented by only a few crypto-players, creating value based on scarcity that replicates the real players’ values. Players assemble teams of crypto-players, and earn rewards based on how well their real counterparts perform on the field. The total numbers of each crypto-player available is determined by smart contracts, so it is impossible for MLB to change the rules of the game mid-season.
How will tokens work with physical collectibles?
The value of physical collectibles such as baseball cards is typically determined by attributes (e.g. rookie cards, sets, unopened sets), age, origin, scarcity, and featured player. Although there are usually many copies of a single card, their value is not static. Condition, as well as personalization such as autographs will affect the value. ERC-721 allows collectors to record all the significant data about the card, and because the token is non-fungible, it preserves the one-of-a-kind qualities of each card. In addition to the metadata, it also documents the ownership, approval, and transfer information for each card. Taken together, this collection of information determines provenance, or transaction history, and the more closely a collectible can be traced back to its point of creation, the more valuable it is.
What other use cases are there?
In addition to the use cases already described, there are several additional practical applications for the ERC-721 protocol. These include the following:
- Social networks: ERC-721 tokens allow users to create unique avatars, which could then interact in virtual environments.
- Authentication: Assigning product details to tokens assures users that products are authentic. This is particularly useful for physical collectibles, such as art and antiques. It also affords protection against counterfeit goods, both physical and digital.
- Authorization, permissions, and access control: Permissions are like keys, in that they grant access to resources. With tokens, permissions can be linked to authentication. Determining which users have the right to use a permission, thereby controlling access.
- Identity: Data about individual people is inherently unique, and it is best stored in a non-fungible token.
- Property titles: These can be recorded on tokens. Non-fungible tokens would include details about the property, including ownership and provenance. Tokens are also useful for establishing ownership of digital content. It’s easy to make copies of digital works, but once ownership is recorded on the blockchain, along with details of the work, it’s there forever, and cannot be faked. This also allows artists and creators to establish copyright over purely digital works.
- Tickets: Plane tickets are issued to a single person, and represent a seat on a specific flight. As they cannot be transferred to another user, they are an ideal use case for non-fungible tokens.
The ability to digitize tangible and unique assets brings blockchain into the realm of the everyday, making it accessible to a broad group of users. As ERC-721 is adopted, it will lead to the tokenization of a much wider range of physical assets. This will help further the acceptance of blockchain technology.