Non-fungible tokens (NFT) are unique crypto tokens; they cannot be multiplied arbitrarily.
While Fungible Tokens such as security token or cryptocurrencies allow fractional value investments (they are splittable; one can hold/transfer a fraction of Ethereum, Bitcoin or similar) and thus offer multiple investors the opportunity to invest in the same value asset at the same time, NFT create scarcity in the digital space. For this reason, NFTs are particularly well suited for (digital) collectibles such as artworks, (music) catalog rights, trading cards, clothing and other unique assets.
Non-fungible tokens can limit assets in the digital sphere and guarantee uniqueness. NFTs are "non-fungible" in that they, or the assets they represent, are unique. That is, they are not interchangeable. While security tokens and cryptocurrencies are interchangeable much like securities, precious metals, or banknotes (you could exchange two Bitcoin, two Apple shares, two ounces of gold, or two 10-euro banknotes with another person, respectively, and it would make no real difference to you), NFTs are thus non-fungible. Examples of non-fungible assets include Internet domains, real estate (including property), and airline tickets.
They are all unique and can exist in their particular form only once. If you exchanged a domain, a house (incl. property) or an airline ticket with another person, you would receive a different Internet address, a different piece of property or a different ticket (e.g. to a different destination, but at least with a different seat).
At present, most non-fungible tokens use the so-called ERC-721 standard. Each individual token using this standard contains unique information and a different degree of rarity. For example, ownership of a Picasso painting may be tied to a single NFT, while a music album or in-game object (e.g., a rare sword) may be issued in limited editions - of which each NFT is unique, but the assets behind them are quite similar. NFT can therefore only be bought or sold as a complete item.
The top five application areas for NFT:
1. Gaming: The video gaming and eSports industry is booming, and more and more people are willing to spend real money on virtual in-game objects. Although the sale of rare (virtual) weapons, equipment, player profiles or so-called skins is currently prohibited in popular games such as World of Warcraft, League of Legends or Fortnite, many players use platforms such as eBay to trade objects that they first pay for offline and then trade later in the game. However, there is a high risk of scam involved, as a big market has opened up around collectibles that offers fraudsters a lucrative platform. NFT solves this problem and enables a secure transfer of items and ownership.
2. Arts: Selling and protecting copyrights of artworks - especially digital objects like music, jiggles, videos, memes, or graphics - is a major challenge for artists in the digital era. NFT solve this problem by allowing investors/collectors to purchase artworks directly or through an auction and present them in virtual space (e.g., in a digital gallery or concert hall) and prove ownership via blockchain. At the same time, artists can protect their copyright. Furthermore, digital (NFT) auctions have a higher reach than traditional offline auction houses, which increases potential auction revenue for art creators. In addition, it is also possible to configure NFT in such a way that artists earn a share of each subsequent NFT sale, providing a recurring revenue stream. And finally, royalty claims can also be mapped through NFT.
3. Collectibles: NFT have created an entirely new form of collectibles: Digital Collectibles, which represent digital trading cards, allow fans to purchase i.e. tokenized versions of their favorite players, among other things, as is already offered in NBA Top Shot by Dapper Labs as well as the fantasy football game Sorare.
4. Assets: Trading in virtual assets is a niche market with great growth potential. Platforms such as Earth2, Decentraland and Cryptovoxels enable the purchase of virtual properties / virtual land in a digital copy of the world. These objects have unique properties and are already traded for five-digit sums (in Euro). Another use case is domains: the website Unstoppable Domains tokenizes website names and makes them freely tradable.
5. Identities: Each person is unique and differs in physical appearance, family background, medical history, and educational and occupational path. All of this data that is part of one's identity can be tokenized using NFT. Companies like uPort tokenize the data that exists about an individual as NFT and give people back control over their data.