Have you ever wondered whether or not that “unique” trading card you own is actually unique? How about that “one of a kind” renaissance painting sitting in your gallery? Turns out, deciphering the authenticity of unique, or rare items is a really tough thing to do in the real world. The art world is full of fakes, and knockoffs, and this brings major financial damages to the world of art dealing and collectables. There is a type of token standard on the Ethereum blockchain that aims to solve this problem. The standard is called ERC721, and its purpose is to enforce uniqueness within tokens. ERC721 tokens are sometimes referred to as Non Fungible Tokens, which is just a fancy way of saying that they cannot be subdivided into many parts. The applications of having a truly unique token is actually quite broad, and the crypto industry has only scratched the surface of what is possible.
By: Keegan Francis | Sep 23, 2020 | Modified Oct 2, 2020
The use case of ERC721 stems from solving an actual real world problem. Much of criticism of blockchain technology is that there is a lack of use cases outside of cryptocurrency. This is disingenuous, as tracking and tagging unique items using blockchain has proven to be a true use case. Just like how there will never be any more than 21 million bitcoin in existence, the uniqueness of ERC721 tokens are enforced in exactly the same way. So what exactly can be tracked and traced with ERC721 tokens?
The very first mainstream application based on ERC721 tokens that took off on the Ethereum blockchain was Crypto Kitties. It was a bit of a trivial use case, but it actually managed to prove the underlying model of unique digital items having value. Crypto Kitties is a platform where you can buy unique digital cats. Each cat is in essence completely unique and different from every other. Their uniqueness is preserved and enforced by the ERC721 standard. Essentially what Crypto Kitties showed the world is that the same model can be applied to baseball cards, art pieces, or even digital items within games. Even though the applicability of Crypto Kitties is quite trivial, it was a necessary proof of concept in proving the use case of ERC721 tokens.
The real conversation gets started when trying to apply the ERC721 standard to real world art pieces. Some experts estimate that as much as 80% of the art on the market is fraudulent. Considering that art is a multi billion dollar per year business, it is really important that the art being traded is authentic in nature. Tracking completely digital cats is one thing, but tracking real world items on the blockchain is another. Anytime a real world item or piece of data is brought into a smart contract, there is an inherent problem of verifying the source of the data. This is known as the “Oracle Problem”, and is essentially a multi-billion dollar problem in the crypto industry.
What if a fake piece of art is authenticated on a blockchain as the original? Just because a blockchain says something is one way, doesn’t make it so. So not only do we need a perfect tracking system like that brought by blockchain, but we also need a perfect oracle that doesn’t make mistakes. Art that is Oraclized by any Joe or Jane should not be trusted. Instead, we still need to rely on art dealers that can be trusted.
The area of industry poised to benefit most, and soonest from ERC721 tokens is the gaming industry. What if every item, skin, or weapon you gained in your video game was hosted on a blockchain? What would that do to the game mechanics? It turns out that ERC721 tokens open up a new world of possibility when it comes to designing games.
Imagine that you are playing a game set in medieval times with swords. Once you’ve completed a quest, and slain a dragon, you obtain this new sword, and it is an ERC721 token hosted on Ethereum. That sword is not contained within the game, but instead, brought inside the game with logic. In that sense, the sword is not confined to the game you’re playing now, but also future games yet to be created. Now imagine you use that sword in this game, and over time, that sword gets imbued with more and more power. It gets interesting when you start playing a completely different game, and get to use the same item from my previous adventure. This time, the game you are playing is set in a dystopian future world with swords.
You now get to use the same sword from the previous game in a completely different game, with completely different mechanics. This mechanic has yet to be explored in the gaming industry in any meaningful way, but we’re all excited for it to be looked at by a major gaming studio in the future. With this use case, there is no Oracle issue as there is no interaction between the real world and the digital one. So as far as we can tell, this use case is ready to be implemented by game designers all over the world.
ERC1155 tokens are the most flexible type of token on the Ethereum blockchain. They essentially upgrade the functionality of ERC721 tokens and allow them to have properties of ERC20 tokens.
NFT stands for Non Fungible Token. This simply means that an ERC721 token cannot be subdivided into many parts like a bitcoin can. ERC721 tokens are not divisible.
Crypto Collectables are NFT’s or ERC721 tokens that are unique. Just like rare baseball cards, these tokens are provably rare, and thus some people believe they have inherent value. Crypto Kitties is the first major example of crypto collectables.
NFT’s have a variety of use cases from tracking rare or unique art, to digitizing the deed of your house. The ownership of the digital asset could be deemed to be tantamount to ownership over the real world asset. This simplified ownership disputes.