- Unique tokens (NFT) are assets that represent unique tangible and intangible elements in a wide range of uses, from sports collectible cards (NBA) to virtual real estate and even digital sneakers.
- The verifiable element feature, that is, the ability to be distinguished from the copies of the original product, is only one of the most important factors in the preference and popularization of NFT.
- Unlike normal cryptocurrencies, NFTs are not an asset type that can be exchanged directly with each other.
“Art is the only way to escape without leaving home.” – Twlyla Tharp
Features of NFT
Unique tokens cannot be traded as 0.50 BTC or 0.333 ETH like Bitcoin or other cryptocurrencies, and as an NFT product is not divisible in mutual transfer transactions, it can be sold or bought at a 1: 1 ratio.
Imagine going to a sporting event or you have a favorite rock band, you want to buy tickets to their concert. As the tickets purchased for both cases are unique to you, they are also unique, that is, they cannot be exchanged for each other.
Variability (in value, popularity, and temporal)
Think of a band. We can witness that they make a lot of noise in certain periods but lose their popularity over time. The same is true for NFTs. For example, the value of an item is 0.1 ETH in 2021, whereas this value may correspond to 670 ETH in 2024.
Two ERC-721 tokens of the same type are not interchangeable. This process is possible in theory, but when done in practice, they are not completely interchangeable. Because their metadata will not be the same.
Non-fungible token standards allow NFTs to be easily moved and contained in multiple ecosystems. For this reason, NFTs prove to be interoperable.
The most challenging feature of interoperability is free trade in open markets. For the first time, users can move their items outside of their original environment to a market where they can take advantage of advanced trading features such as eBay-style auctions, bidding, auctions (such as the sale of an NFT produced in Enjin), and stablecoins or application-specific coins. They can perform sales transactions over their units.
In particular, this represents for game developers to shift their assets from a closed business to a free market economy. From this point of view, we can say that a great revolution has already started for the gaming industry and it has no intention of stopping.
The ability to trade non-fungible tokens instantly after they are issued will result in higher liquidity.
NFT markets will create liquidity pools based on auctions, just like DeFi liquidity pools, and in return for the value there, people will be able to receive fungible tokens by donating NFT tokens, and vice versa. NFT markets can appeal to a variety of audiences, from tight trading traders to more novice players, allowing assets to be more exposed to a wider pool of buyers.
Similar to the emergence of a new asset class driven by liquid tokens at the moment of the ICO boom in 2017, NFTs continue to expand the market for unique digital assets.
Immutability and demonstrable scarcity (being resistant to later change and the supply can be determined precisely during creation)
Smart contracts allow developers to set fixed limits on the release of the unique token and apply persistent features that cannot be changed after NFTs are released.
However; For example, a developer can programmatically require only a certain number of specific rare items to be created, while keeping the supply of more common items infinite.
The fact that developers cannot change the properties of the products and the predetermined number of offerings over time, thanks to the “immutable” feature of the blockchain, is particularly suitable for items such as original artwork.
Like traditional digital assets, NFTs are fully programmable. For example, in CryptoKitties, the ancestor of NFTs, you could grow and mature digital cats thanks to design mechanisms such as feeding them with baked cookies.
Most of today’s NFTs have more complex mechanics such as forging, embroidery, monetization, random generation. In my opinion, the Design space of NFTs is infinite in possibilities.
Over time, developers have created common, reusable, inheritable standards for all fungible tokens by representing non-fungible tokens in public blockchains. These; Basic principles such as ownership, transfer and simple access controls.
These principles or protocols are similar to the HTTP protocol sending a “request” between two different computers when images in JPEG or PNG formats are desired to be displayed. In short, you can think of HTML / CSS technologies as displaying the contents on the website and performing various operations during the day.
Blockchains add a layer that allows developers to store primitive elements and their metadata, providing a whole new set of state information to develop applications on. This area is called block chain standards (supports stateful data storage and logical operations).
Let us briefly explain 3 of these standards, which are generally known.
First, let’s explain what a token is, with a sentence and examples.
For Ethereum, token is a virtual storage or representation of any asset on Ethereum or other blockchains.
- Reputation points on online platforms
- A player’s abilities in a game
- A fiat / fiat currency such as USD
As you can admit, there are different scenario rules in each of these examples. There are token standards that have been designed according to these differences and have pre-determined code rules.
Let’s get to know them together now.
ERC-20 (standart token)
General definition: It provides a standard for exchangeable tokens, ie each token has a feature that ensures that each token is exactly the same (in terms of type and value) as another token.
Technical Description: ERC-20 (Ethereum Request for Comments 20), proposed by Fabian Vogelsteller in 2015, is the token standard that implements an API for tokens in smart contracts.
For example: 1 ETH is always equal to 1 ETH and the exchange of each other will not cause a change in terms of value and type; It proves that ETH is the ERC-20 token.
ERC-721 (Non-fungible token standard)
General definition: A type of token that offers a standard for NFT. In other words, these types of tokens are unique and can have a different value than another token in the same smart contract. ERC-721 tokens; They may differ according to their age, rarity, and even their appearance.
Technical description: ERC-721 (Ethereum Request for Comments 721), proposed by William Entriken, Dieter Shirley, Jacob Evans, Nastassia Sachs in January 2018, is a non-fungible token standard that implements an API for tokens in smart contracts.
When the ERC-721 feature was invented for the first time before Ether was born, it was wanted to be added to the Bitcoin world in matters such as the certification of real estate and assets other than Bitcoin, but it was originally brought to life with Ethereum because it could not be successful and stable.
For example, one of the 2 tickets purchased for the Champions League final match is a regular seat, and the other is a VIP / Lounge ticket.
ERC-1155 (multiple token standard)
We can say that this protocol was created for the game world. It is a relatively new token standard compared to other tokens that feature both tokens.
Created on 17 June 2018 by Witek Radomski, Andrew Cooke, Philippe Castonguay, James Therien, Eric Binet, Ronan Sandford, ERC-1155 is also known as the multi token standard. We see that they are also called semi-fungible tokens.
In short, ERC-1155 allows an infinite number of both exchangeable and immutable tokens to be traded in a single smart contract.
This standard, which allows the management of fungible, semi-fungible and non-fungible tokens, is designed to prevent bottlenecks in future transfers.
Thus, it allows different types of token types to be collected in only one transaction instead of too many transactions, allowing different types of items to be transferred faster, cheaper and lighter (within the scope of the data size area covered in the block) transactions.
For example, in a game platform that works with blockchain and NFT, instead of purchasing separate items with ERC-20 and ERC-721 for in-game purchases, buying them on a single standard in a single transaction is an example of ERC-1155.
Note: As we will examine these “token” types and standards in detail in the following sections, we have generally mentioned them here.
NFT metadata concept
They use metadata to acquire properties of objects or assets from an external location outside of the contract.
These are the codical data in JSON format that enables us to visually present the unique features of digitally stored assets on the platforms and gain acquisition through these elements and gain the defining features of the ERC-721 NFT.
JSON is not stored inside the Ethereum contract. Because it is very expensive in terms of cost. Instead, it is stored in the URI (Universal Resource Identifier) String type, which indicates where the user can find the JSON description of the metadata associated with the token.
This information is captured through API and we are provided with information about the features of the products on NFT platforms.
When you implement your contract, we need a method for each item to appear properly, for example in OpenSea (and other websites that also support non-fungible tokens).
This is where off-chain metadata comes in.
There are many things you can do with metadata: sorting, price increase, animations, date information and much more …
Including the metadata of the assets allows applications such as “OpenSea” to extract rich data for digital assets and view them easily within the application.
Since metadata standards are a technical and long subject, we will examine this issue in detail in the following sections.