by Everett Muzzy
Since its launch in November, Axiom Zen’s CryptoKitties app has reportedly seen $12 million worth of ether spent in buying and trading various unique digital cats on its platform. The decentralized app became so popular that it slowed down the average transaction time on the Ethereum network, sparking conversation on online forums about the necessary growing pains the network has to endure as developers tackle scalability issues. Much less discussion, let alone excitement, however, has focused on the powerful properties of CryptoKitties, namely their launch as an ERC-721 token, known as a non-fungible token (NFT).
When a set of assets all have equal value to each other, they are defined as fungible. As an example, a US dollar has the same value as any other US dollar. The person spending that dollar and the person receiving that dollar do not care where that dollar came from or where it might eventually land. In the world of crypto-assets, fungibility promotes high liquidity among tokens in an ecosystem. As all tokens of a particular blockchain are created equal, multiple transactions can occur rapidly and instantaneously without the participants worrying if the tokens all store the same value.
A non-fungible asset, however, is not equal to its counterparts. The most tangible example of a non-fungible asset is any sort of collectible. A baseball is just a baseball until it is signed by Babe Ruth. Then, it gains additional value and becomes a non-fungible asset, valued differently than all other baseballs out there. Non-fungible assets generally have a greater scarcity than fungible ones, and therefore hold more intrinsic and unique value. With scarcity and value now measurable in the digital realm through blockchain and distributed ledgers, we are just beginning to see the potential of non-fungible digital assets.
ERC-20 v. ERC-721
Most tokens currently built off the Ethereum blockchain are ERC-20 tokens. Using the ERC-20 blueprint, developers can program tokens to function in the Ethereum ecosystem and can be confident in the properties and performance of those tokens. ERC-20 tokens are highly useful and liquid, and have been used to raise billions of dollars through ICOs. Many serve as utility tokens, which allow holders of those tokens to access a particular dApp and its services.
ERC-721 tokens, however, are purposefully non-fungible. By design, ERC-721 tokens are each given a unique and indivisible set of properties, unequal to other tokens on its blockchain. Unlike ERC-20 tokens, which can be divided nearly infinitesimally (a powerful tool for a future with distributed micro-lending and crowd-lending), ERC-721 tokens cannot be divided, as they represent one unique asset in its entirety (the same way the Babe Ruth baseball cannot be split in half and maintain its value). As the explosion of CryptoKitties has demonstrated, ERC-721 tokens will usher in a world of crypto-collectibles, where people recognize unique scarcity on the blockchain just as they do in the physical world.
FUTURE OF ERC-721
Beyond the world of digital crypto-collectibles, however, CryptoKitties poses an interesting case for a tokenized future, where even physical assets are represented on the blockchain and NFTs are owned not just for their intrinsic, collectible value, but for their practical utility. We could see a future where land plots and houses or corporate stocks are tracked and owned through an ERC-721 token blockchain. Applications built off Ethereum such as Decentraland are already building virtual worlds in which non-fungible assets can be traded between users in the ecosystem.
CryptoKitties was the first popularly-adopted implementation of a digital NFT, and at one point accounted for 15% of the Ethereum network activity. Clearly, there is a desire and an opportunity for NFTs in the Ethereum ecosystem. Early implementations may seem inconsequential, and may harken back to the days of Beanie Babies and card trading, but the success of CryptoKitties shows that people can recognize unique value and scarcity on the blockchain, and are eager to do so.