Non-Fungible Tokens: Why They May Be Hot in 2018

While ICOs and up and coming new coins were hot, there is a new class of digital assets that is gaining in popularity - non-fungible tokens, with a new model of holding value.

The most common way digital assets gain value is through exchanges. But there may be a form of tokens which are valuable in themselves - and possibly reflect real-world goods and assets. The ERC-271 standard on the Ethereum network, with a similar counterpart running on NEO, are known as non-fungible tokens, the technology behind CryptoKitties and NEO’s HashPuppies.

But non-fungible tokens, or NFTs, have much wider use cases, which sometimes are more intuitive compared to regular tokens. One of the uses is within gaming ecosystems and augmented reality projects. NFTs allow for indisputable ownership of virtual goods and in-game assets.

Recently, Craig Sellars, co-founder of the Omni layer and Tethers, spoke of the potential of non-fungible tokens. Those tokens could be collected as physical coins are collected now, sometimes just for the reason of participating in a historic transaction. NFT use cases are, in this way, much more intuitive compared to tokenizing assets with regular tokens.

There are already a handful of projects allowing for the creation of NFT. Those include the 0x Project, and of course Axiom Zen, the project behind CryptoKitties.

However, the biggest problem with NFT is centralization. In order for crypto collectibles to exist, they still need the regular web environment. The NFT tokens themselves, as a technology, are hardly unique - but only unique when they are attached to a scarce resource, an event, or anything else that is hard to reproduce. In the case of CryptoKitties, there was also the artificial scarcity, with Gen1 kitties minted every 15 minutes and commanding a higher price.

Then, there is the Crafty project, an algorithmic creation of virtual objects that uses existing crypto assets. For some projects on Crafty, Augur (REP) tokens and Football (FTBL) tokens receive a use case - combined, they pay for creating virtual items. The recipe games may also require additional fungible tokens and assets, or other NFT from related games.

In this way, NFT can bridge the gap between the multiple token projects, and create a viable economy, generating value beyond the speculation on exchanges, explained Bryan Flynn, a crypto expert, in a recent blog.

Additionally, the crafting and recipe games also decentralize the creation of non-fungible tokens. Users generate the rare items by investing crypto coins, and then go on to sell or exchange the newly valuable items. That user-generated content may be the next wave in democratizing content generation on the blockchain - and the technology could actually use up the large supply of tokens without a clear use case.

And while buying up NFT just for speculation may be unwise, keeping an eye on the market and the newly emerging economy may lead to crypto gains down the line.