13. Non-Fungible Tokens (NFT)

Monday 21st February 2022

Non-Fungible Tokens (NFTs) are of 5 types - Digital art, Collectibles, In-game / Metaverse assets, NFT Domains, and Wrapped NFTs.

Consider the balance in your mobile wallet (say Rs. 10,000). Is there any difference between each of these rupees? No, there isn’t. So we can say that this digital money is "fungible" - every rupee is exactly the same as another rupee.

Is every 500-rupee note identical in value? Most people would say yes. But it’s not! An older 500-rupee note is worth zero – remember demonetization? Then there are people who collect notes with "special numbers". I collect 1-rupee notes and you would be surprised to hear that some 1-rupee notes sell for over Rs. 10,000 each!

So, we can say that physical currency notes are "non-fungible". Diamonds and physical art are also "non-fungible".

Non-Fungible Tokens (NFTs) started off with CryptoKitties - a game centered around breedable, collectible, virtual cats. According to the official project website, "Each cat is one-of-a-kind and 100% owned by you; it cannot be replicated, taken away, or destroyed".

NFTs can be divided into these 5 categories:

Category 1:
Digital art such as images, videos, and GIFs.

Category 2:
Collectibles such as NFTs Stamps from the Switzerland National Post Office.

Category 3:
In-game / Metaverse assets such as avatars, skins, weapons, and virtual real estate.

Category 4:
NFT Domains such as .crypto, .nft, .dao

Category 5:
Wrapped NFTs backed by assets like IP licenses, private equity, unlisted debt, real estate.

A number of NFTs in Category 1 are plagiarized works, fake collections, spam, and frauds. And then there are rug-pulls. And wash trading - illegally inflated trade volumes by constant buying & selling within a group.

According to DeFi Llama, some of the top NFTs and their Market Caps are:

1. CryptoPunks ($6.6 billion)
2. Bored Ape Yacht Club ($3.4 billion)
3. The Sandbox ($2.02 billion)
4. Mutant Ape Yacht Club ($1.22 billion)
5. CLONE X ($1.17 billion)