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Tokenisation is the digital unitisation and potential electronic disposal of an asset, be they tangible or intangible, in part or in full.
Many people involved in the blockchain space are familiar with the concept of a utility token. In short, utility tokens are units of account that can be used to access services and/or facilitate the functioning of a network – fulfilling almost any function imaginable, from voting in an election to placing bets in a prediction market.
What is Fungibility?
This is the ease in which an asset may be traded against another unit of that same asset. For example, one Bitcoin is always equal to another single Bitcoin. However, not all assets are fungible. In the physical world, artwork is a prime example of non-fungibility. If we were to take a piece of museum-grade fine art and compare it to an amateur’s painting, we may find some superficial similarities but the other, critical characteristics such as the artist and subjective beauty which make them non-fungible; impossible to meaningfully compare or trade with each other in real life.
What is a ‘Non-Fungible’ Token?
Instead of tokens which hold or represent identical value, non-fungible tokens (NFTs) represent an item with unique characteristics distinct from other assets. For example, if you own Bitcoin or Ether, you may not care which specific unit you have, as long as you have 1:1 equal units. Non-fungible tokens, however, are unique, so it does matter which one you have. This has powerful value when it’s programmed into a token, as it allows items, such as in-game digital assets or collectibles, to be represented as an actual asset.
So, what does this mean?
By tokenising virtual property, it becomes a tangible and immutable asset stored on the blockchain, which means players can prove ownership, trade, and sell their items which they’ve earned in the virtual world. Gamers can then exchange assets with each other or transfer them from game to game, placing a high value on the in-game.
What else could be Tokenised?
Fine art pieces worth substantial sums of money are prized assets for their owners, however, they have traditionally lacked liquidity. Through this process owners could release equity in their art piece to other investors, who would own a provable stake in that piece of fine art.
Game developers could integrate smart contracts and non-fungible assets to enhance their item infrastructure and generate new streams of revenue. Non-fungible tokens can be used to create transparent digital scarcity, stimulate player engagement, and allow secure and monetizable ownership of assets.”
Chris Gonsalves, Hacker Noon