Digital ledger technology, more commonly referred to as “blockchain”, has been making headlines for years due to the rise of cryptocurrency. We know Bitcoin to be the king of cryptocurrencies, but the use case for blockchain technology does not end there.
First, what is blockchain technology, anyway? A blockchain is simply a distributed database shared among nodes on a computer network. What makes blockchain unique from other databases is how the data is structured. Information in the blockchain is gathered into groups, known as blocks. Blocks have finite storage capacities and when filled, are linked to the previously filled block in the chain. New information then fills subsequent blocks which are added to the chain and the cycle continues. While traditional databases resort to tables to hold their data, a blockchain relies on blocks that are strung together. One last point of note here is that a blockchain is meant to record and distribute data, but not allow edits or deletion. This key feature is great for keeping historic information and what gives blockchain its “digital ledger” reputation.
Bitcoin rides blockchain technology to produce its value as an asset. High end computer systems, also referred to as “miners”, solve complex puzzles to fills blocks with transaction data. Miners are then rewarded with a small percentage of Bitcoin, which serves as a motivation to fill more blocks. We know Bitcoin has value because these blocks are unique by design, but does one Bitcoin have a different value than another?
In a word, no! One Bitcoin has value equal to another Bitcoin and can be exchanged in the same way one dollar bill has the same value as another. This makes Bitcoin interchangeable, or what is called “fungible”.
Non-Fungible tokens, or “NFTs”, are the latest blockchain craze because they provide something new in the space: a non-interchangeable, digital asset. You may have heard of NFT artwork selling for millions of dollars by now (the most notable being Beeple selling an NFT of his work for $69 million at Christie’s auction house) and wondered what the big deal is with them. Well, unlike cryptocurrency, no two NFTs are alike since they allow digital certification by a unique, digital token. Think of them as two Pokémon cards, each identifying themselves with different attributes and therefore having a difference in value.
NFTs can actually represent any non-fungible, real world asset, whether it’s a painting, a legal document, or even property. Similar to cryptocurrency, they can be purchased on NFT-enabled exchanges and stored in NFT-enabled wallets. Based on blockchain technology (most existing on the Ethereum blockchain since the ERC-721 standard was added), NFTs can certify an original copy and with the help of the ledger, make it much easier to pay royalties to an artist. Artists can therefore attach stipulations during the minting process to ensure they are paid every time their work gets resold and even limit the quantity of copies released.
While NFTs are making waves in the world of digital art today, their future expands far beyond it. NFTs change the rules of ownership allowing for transactions that once relied on layers of middlemen, such as lawyers, to be completed with smart contracts since they convert any assets into tokens where they can move within the digital system. Real estate and automobile markets will be completely transformed as NFTs gain adoption.
A future spent more in virtual worlds (i.e. “the metaverse”) will also benefit directly from NFTs. NFT items used in video games are one of a kind and can potentially be transferred to completely different games since they exist on the blockchain. Some video games already support owning in-game objects as NFTs and at least one game allows players to own virtual plots of land. Rapper Snoop Dogg currently owns virtual property in the Snoopverse, an interactive world being developed in The Sandbox (“an Ethereum-based platform for creating hangout spaces and gaming experiences”).
When there is certifiable, digital ownership over real world and virtual assets, the lines between the physical and virtual are blurred and more profound use cases can eventually become reality thanks to NFTs.
By Alberto Jimenez, Sr. Systems Administrator