Non-fungible tokens, or “crypto-collectibles,” are a special type of cryptocurrency token. Unlike a Bitcoin, a crypto-collectible is unique, turning a digital item into a desirable collectible.
To some, the idea of a crypto-collectible sounds ridiculous. For others, the rise of crypto-collectibles is simply the evolution of other collectible crazes, but with built-in security and transparency via blockchain tracking.
So, what are crypto-collectibles, and are they worth anything?
What Are Non-Fungible Tokens?
A non-fungible token (NFT) is a cryptographic token that is not interchangeable for another token.
Bitcoin, Ethereum, EOS, IOTA, and so on, are all fungible tokens; each token is the same, and that is what allows them to function as a currency. Your fiat currency is fungible, guaranteeing that your five-dollar bill is the same in California as Chicago, New York or North Dakota. The other important feature is that most fungible tokens (or other assets) are divisible. That means you can break the token down into smaller bits, but you can still spend or trade the token in the same manner.
NFTs, on the other hand, are predominantly unique. If you send someone an NFT, you better hope you get the same one back! Unlike a regular token, you cannot break an NFT down into smaller bits.
Non-fungible tokens are also known as crypto-collectibles. That is because as a unique token, the digital asset holds unique value. The Decentraland decentralized virtual world project defines a crypto-collectible as:
“A crypto-collectible is a cryptographically unique, non-fungible digital asset. Unlike cryptocurrencies, which require all tokens to be identical, each crypto-collectible token is unique or limited in quantity.
“Typically, crypto-collectibles are visualized as real-life objects such as pets or avatars. Each token has variations in specific attributes, and there are limits to the number of tokens that can be generated.”
The value of a crypto-collectible, then, derives from its digital scarcity.
How Do Crypto-Collectibles Work?
Ethereum-based tokens use the ERC-20 standard. The ERC-20 defines the usage of tokens, wallets, and blockchain activities. ERC-20 isn’t the only Ethereum-based token standard. A vast number of crypto-collectibles use ERC-721 tokens. ERC-721 tokens are non-fungible tokens that you cannot divide and are used to represent a unique digital asset.
Although the market is awash with ERC-20 tokens, ERC-721 tokens are much scarcer, and not just because of their intended use. The crypto-collectibles market is still young, even in comparison to the cryptocurrency world and as such, they are not in use in many places.
Scarcer still is the updated ERC-1155 token. ERC-1155 is an upgrade to ERC-721 that allows the creation of mixed fungible and non-fungible tokens within a single smart contract.
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Examples of Crypto-Collectibles
Crypto-collectibles and non-fungible tokens come with a variety of use cases. At the time of writing, most crypto-collectibles relate to crypto-based games.
Perhaps the most well-known crypto-collectibles come from CryptoKitties. CryptoKitties is an Ethereum blockchain-based collectible platform. Users can collect and breed digital cats, hopefully finding unique and rare “Cattributes” to enhance the value of the digital asset. In late 2018, someone purchased “Dragon” for 600 ETH ($172,000 at the time), though this astonishing price was more of misnomer against the backdrop of the flat CryptoKitties market.
Still, it shows that given the right circumstances, a non-fungible token with the right symbolism will attract interest. At the time of writing, CryptoKitties sales total 57498 ETH—or $27,397,095.46. Yup, all that on digital kitties.
Another useful example is the aforementioned Decentraland. Decentraland is a virtual city that comprises individual and unique plots of LAND. You can buy, build, traverse, and later, monetize your plot. Decentraland is an Ethereum-based virtual world, where each parcel of LAND is fully ERC-721 compliant. Furthermore, you can “build” further unique crypto-collectible digital assets into your Decentraland plot, increasing the rarity and perhaps the value along with it.
In the Decentraland example below, the highlighted red portion of the map is for sale. The 30 parcels of LAND are on sale for 3,000,000 MANA—over $150,000 at the time of writing.
Where Can I Buy Crypto-Collectibles?
The best place to buy a crypto-collectible is from the site, service, or game you hold an interest in. However, as these are crypto-collectibles, there are a few crypto-collectible marketplaces where you can head to browse a wide selection of potential digital assets.
One such place is OpenSea. OpenSea is “the largest marketplace for crypto collectibles,” listing thousands of unique digital assets, including BlockCities, CryptoKitties, and MyCryptoHeroes.
If you cannot find what you’re looking for on OpenSea, check out Rare Bits. Rare Bits is another enormous marketplace for crypto-collectibles, listing “over 1,000,000 assets” with zero fees. You can find unique digital assets for Gods Unchained, CryptoAtoms, BlockchainCuties, Axie Infinity, CryptoPunks, and many other popular games and services.
Are Crypto-Collectibles Worth It?
Crypto-collectibles are an innovation in the world of cryptocurrency and blockchain. Their long-term value isn’t understood, and the viability of a crypto-collectible as an investment is completely unknown.
Sure, a few CryptoKitties have sold for six-figure sums, but they are few and far between. But there is also speculation that some of those sales were motivated by money laundering. Indeed, the most expensive CryptoKitty was nothing special; not particularly rare, not an early generation, and with no distinguishing features.
Unfortunately, none of us know where the crypto-collectible market is heading. I have read a few articles framing crypto-collectibles against famous works of art, that crypto-collectibles will become the Monet’s and Rembrandt’s of the 21st Century. Personally, I think that is bunk. Crypto-collectibles can form an erstwhile market and provide value for their investors and the people playing the games to collect them, breed them, build them, and so on.
But comparing a CryptoPunk to a Caravaggio? Get real.
The crypto-world is fraught with issues, fraudulent schemes and scammers abound. Find out if anyone is learning any lessons from the crypto hacks and scams of 2019!