A major type of asset that can be held on the block chain is something called a Non-Fungible Token, or NFT. But what exactly is a non-fungible token?
First, the word fungible. What does that mean?
The Oxford dictionary defines fungible as:
“(of goods contracted for without an individual specimen being specified) able to replace or be replaced by another identical item; mutually interchangeable.”
When examining an asset like currency, fungibility is a desired trait. A dollar is a dollar and interchangeable with another dollar. As such, a dollar can be passed around and used to transact business. When shopping, the merchant has no reason to care which particular dollar a consumer is using; all dollars are fungible and easily replaced by another dollar. They are, for practical, economic reasons, the same.
But for assets that are collectables, being replaced by another identical collectable is not a virtue. A collectable should be unique or scarce. If not, then there is no reason to collect it; it is widely available.
A non-fungible asset cannot be exchanged for the same item. They are unique. The very nature of a non-fungible asset’s uniqueness means that it has intrinsic value to collectors, but it also means that the asset could be subject to volatility.
Non-fungible tokens create scarcity that is verifiable on the blockchain and signify digital ownership. Since the token exists on the blockchain and digital ownership is irrevocable, these tokens can be transferred between owners and between platforms.
Digital objects like collectables, art, and gaming tokens can all be minted on the blockchain to become non-fungible tokens, making them tradable, scarce, and therefore, potentially valuable. And since these tokens are owned on the blockchain, they are fully under the control of the owner.
The game Cryptokitties in generally accepted as the first blockchain-based game to utilize non-fungible tokens and popularizing the technology. Many games have followed, but as the acceptance of blockchain technology and these tokens continues to grow and become mainstream, the potential for rapid development in the sector is growing.
