In Part 1, we discussed what cryptocurrency is, demystified the blockchain, and defined the difference between proof-of-work and proof-of-stake verification methods. In Part 2, we discussed what mining is, how to invest in cryptocurrency, and how to use it in the real world. If this sounds familiar, keep reading. If not, click here to read Part 1 and here to read Part 2!
Imagine you’re at an arcade.
You approach an employee and ask to buy tokens, handing over real cash in exchange for the plastic gold that will allow you to (maybe) win that stuffed bear you’ve wanted since you were eight. When you invest in cryptocurrency, such as Bitcoin, you are also exchanging cash for tokens, except instead of gaining access to an arcade, you get access to that blockchain. Hence, the token is a representation of something tangible or intangible within an ecosystem.
Now that we know a bit more about the crypto “arcade,” we can define the difference between fungibility and non-fungibility. A fungible asset is described as “divisible and non-unique.” For example, the penny at the bottom of your purse retains the same one-cent value whether it travels from Massachusetts to California. Bitcoin is a fungible token because it retains the same value, no matter where it is issued.
Non-fungible assets are the opposite. Described as “unique and non-divisible,” your car, your home, and even your expired spring break plane ticket to Punta Cana are all non-fungible because they are one of a kind – each contains specific data that make them impossible to replicate. Thus, a non-fungible token represents a unique item on the blockchain such as a picture, GIF, or a PNG of a rock. So, while fungible tokens like Bitcoin store some kind of value, non-fungible tokens store data connected to a digital asset.
Awesome – we know the difference between fungible and non-fungible assets. We’re gonna get a little more technical now, so hold on tight. So far, we have been using cryptocurrency and tokens interchangeably, but there is a considerable difference between the two terms. Although the two are built on the same blockchain technology, cryptocurrency refers to payment coins that have their own blockchains, such as Bitcoin. Crypto tokens on the other hand are created on another blockchain and represent digital units of value developed on existing blockchain networks, such as Ethereum. Both the first fungible and non-fungible tokens were created on the Ethereum blockchain and have been around since before 2016.
Non-fungible tokens, otherwise known as NFTs, have been utilized in gaming and in the arts. Back in 2017, CryptoKitties appeared on the Ethereum blockchain, allowing users to own, care for, and even breed digital cats. Today, NFTs are commonly associated with artworks, such as Bored Ape and CryptoPunks.
Now that we know what NFTs are, you may be wondering how to get involved. The first step is to buy a cryptocurrency, such as Ether, and sign up for a cryptocurrency exchange like OpenSea. Once you are registered with an exchange, you will need to transfer your cryptocurrency to a crypto wallet. Make sure that your selected exchange platform is compatible with the blockchain associated with your crypto wallet. For example, OpenSea uses Ether as their crypto token, so if you plan on using OpenSea, you will need to use a crypto wallet compatible with Ether in order to buy NFTs on the exchange.
What are the pros and cons? For starters, NFTs have given artists the opportunity to monetize their artwork without an agent. All they need to do is activate a specific function on the blockchain they registered their NFT through that gives the artist a profit percentage every time their NFT is sold. On the flip side, NFTs present a unique challenge to the intellectual property space. The possibility to create duplicates and upload copies of the same artwork has led individuals to question the purpose of owning an NFT when one could just screenshot the work and save it to their desktop. To respond to this skepticism, perhaps consider why people invest in art in the real world. You may be able to replicate Van Gogh’s Starry Night, but the real piece hangs in The Museum of Modern Art in New York City. Your knock-off holds little to no value while Van Gogh’s original is worth well over 100 million dollars. By purchasing an NFT, you stand to gain the value of an original piece of work.
Now you know the difference between fungible and non-fungible tokens, the nuance between cryptocurrency and crypto tokens, and how to purchase NFTs. Next up, we’ll talk about how to create, or “mint,” an NFT, and how one NFT has used its sales for social justice.
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