Digital Collectibles and NFTs Explained

Introduction to Digital Collectibles and NFTs

• This lecture covers digital collectibles, digital identities, and NFTs
• Mack Flavelle from Axiom Zen faced the challenge of combining FarmVille's appeal with CryptoPunks' collectibility
• He envisioned a game involving breeding cats on a blockchain with 8-bit Nintendo-like digital images
• The ERC-721 white paper was a pivotal smart contract that caused congestion and brought down the Ethereum network in 2017

What are NFTs?

• NFTs are unique items verified and secured by a blockchain, using the same technology as cryptocurrencies
• An NFT provides authenticity of origin, ownership, uniqueness (scarcity), and permanence
• Most NFTs currently exist on the Ethereum blockchain
• Some NFTs are created on and reside on WAX, the Binance Smart Chain, and other blockchains

Understanding Non-Fungibility

• The term "non-fungible token" can be broken down into its components
• "Token" in NFT acts as a cryptocurrency token
• Coin and token are often used interchangeably
• Cryptocurrencies like Bitcoin and Ethereum have their own blockchains
• Tokens utilize another coin's blockchain
• GameCredits (GAME) and SushiToken (SUSHI) use the Ethereum blockchain
• Cryptocurrencies are fungible, meaning they are interchangeable
• It doesn't matter which wallet a Bitcoin comes from, as one Bitcoin is equivalent to another
• Bitcoins can be exchanged for an equivalent value of Ethereum
• Non-fungible items cannot be freely exchanged or replaced by similar items
• NFTs are non-fungible and each NFT is unique
• You cannot freely exchange or replace one NFT for another

Uniqueness of NFTs

• The principle behind NFTs makes use of blockchain tech to provide uniqueness to each associated item
• Each minted token has a unique identifier and cannot be interchanged with other tokens
• NFTs can only have one unique owner
• Ownership information is easily verified
• NFTs have publicly verifiable transaction histories for easy proof of ownership
• Modifying data or stealing ownership of an NFT after minting is nearly impossible
• All NFTs are identified using a unit 265 ID in the ERC-721 smart contract, which remains constant
• The NFT system comprises the owner and the buyer

Types of NFTs

• NFTs commonly include digital art and collectibles like images, videos, GIFs, audio, 3D models, and prose
• Some game developers create NFTs for in-game items
• In F1 Delta Time example, players need in-game car, driver, and tire NFTs to compete
• Other types of NFTs include digital collectible game cards and virtual real estate like Decentraland

NFT Standards

• NFT Standards are protocols on blockchain networks ensuring uniformity and interoperability
• These standards facilitate the creation, trading, and ownership verification of NFTs
• The two primary NFT standards are ERC-721 (the first standard) and ERC-1155 (the multi-token standard)

ERC-721: The First Standard

• It is the original NFT standard for non-fungible digital assets on Ethereum
• It enables the creation of unique, indivisible tokens for representing scarce assets
• It provides interoperability, provenance and authenticity, and programmability
• Challenges include Gas Fees, Market Volatility and Legal and Regulatory issues
• CryptoKitties and NBA Top Shot use it

ERC-1155 : The Multi Token Standard

• ERC-1155 allows for both fungible (like cryptocurrencies) and non-fungible tokens to be managed through a single contract
• ERC-1155 efficiently handles multiple asset types in one transaction, enabling Interoperability, efficiency, scalability etc
• Flexibility supports both fungible and non-fungible items
• Challenges include complexity and adoption of new standards
• Example ERC-1155 tokens include Enjin Coin and ChainGuardian