This is an excerpt from a story in DeCrypt :
“I believe in a world which is financially decentralized and the power of dreams to be the core lightning network of humans.
“Here is my first Digital Collectible from which I shall donate to charities that accept Bitcoin to empower younger generations in order for them to adapt and learn about this revolution that humanity is witnessing.”
Some crypto-using social media followers commented that Rarible—and NFTs—leverage the Ethereum blockchain, not Bitcoin or the Lightning Network. Ethereum is optimized for smart contracts that make NFTs possible, whereas Bitcoin was built to be, first and foremost, a digital currency. Lightning Network, which Lohan may or may not have been referencing, is a network built atop Bitcoin that uses smart contracts to make it easier and faster to send BTC.
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The new technology I wish to discus today is called a non-fungible Tokens, which are also called NFT’s. NFT’s are a completely different type of token from Bitcoin or Steem. Bitcoin and Steem are technically known as fungible tokens. That word Fungible means that each Bitcoin is worth the same as any other and they are interchangeable, just like you and I can exchange dollars, euros, yen or what ever currency we have in our wallets, because the dollars like the Bitcoin are equal or the same, copies of the original and indistinguishable in form and function, and these dollars are interchangeable.
The opposite of day is night, and the opposite of interchangeable or fungible is Non-fungible.
Non-fungible Tokens, which are called NFT’s are different, in that each is created to be unique, or to represent something unique. An NFT token can represent an entire unique object or a specific piece of a unique object.
For example an NFT Token could represent your entire body or a piece of your body like your right arm or left leg. The NFT token representing your arm would differ from the NFT representing your leg and just as your right arm and left are are unique and NOT interchangeable, so are the NFT tokens which represent them. The term fungible means the same and interchangeable. The term non-fungible has the opposite meaning, non-fungible means uniques and not interchangeable. The process of representing your entire body or just a part of it as a non-fungible token is called tokenization which means to make something a token.
An additional use of this term or concept we should understand, to understand the role of fungible and non-fungible in commerce or finance is that a dollar is fungible and dollars are interchangeable. But a rare antique car, a rare painting by a famous artist or a piece of real estate are unique, not interchangeable and are by definition non-fungible.
So now imagine, that instead of selling your car, house or piece of art to the small number of potential buyers who live in your neighborhood, your town or your city, that instead you could sell them to a much larger pool of buyers of people like your whole country or your whole continent.
This much larger group of buyers would mean a larger number of people who want to purchase an item of limited quantity. Your car, house or your artwork are not interchangeable with someone else’s car, house or artwork. They are unique. As such they are perfect for representation by a non-fungible Token, a digital or virtual entity or creation. If you created a NFT token, which represented your car, (tokenization) and listed it on a cryptocurrency token exchange, you would have access to a much larger group of buyers.
Therefore because a non-fungible Token can be listed on an exchange on the internet, it can be seen, described, photographed, a movie can be made of it and describing it. These representations of printed text or word, pictures or movies can be made digital by typing the words into a internet webpage, or uploading the pictures or movies. The object you want to sell is tokenized as a non-fungible token and a digital image or description can be viewed on the exchange webpage around the world.
Therefore once the unique item you want to sell is represented by this non-fungible token, and offered for sale on a token exchange, it can be sold to a buyer in another city, country or continent. The seller can be in Paris and the buyer in Tokyo. And just like buying Steem on an exchange and sending it to your wallet makes that Steem, your Steem. Buying the non-fungible tokens which represent a car, a painting or a house on the exchange and sending that non-fungible Token to your wallet, makes that car your car, it makes that painting your painting and makes that house your house.
Remember when I wrote that an NFT Token could represent your entire body or just a piece of your body like your right arm or left leg. A NFT token can represent all of a unique object or part of it. When you buy a candy bar you want to own all of it and you usually can afford it. It’s not considered a risky investment and usually represents only a small portion or fraction of all the money in your wallet. But if you were to buy the candy bar company, instead of the candy bar, that would be a larger investment, and riskier one because a much larger portion or fraction of the money in your wallet would be needed to but the candy bar factory. Fractionation reduces both cost to individual token buyers and their risk. So the seller of the candy bar company can tokenize the entire factory and represent it as one non-fungible token or NFT or he can represent it as one thousand tokens or one million tokens. The concept of representing a unique Nonfungible object as many tokens instead of one is called fractionization. This reduces the amount of money you invest in the candy bar factory to the amount you would pay for the candy bar. So while there were few buyers for the candy bar factory, if you break it into smaller pieces there will be a larger group of buyers.
As we learned above, Tokenization allows you to sell to a larger market and get a better price for your unique object. Thus Tokenization solves the problem of small markets. But an expensive object is hard to sell even in a large market. Fractionization solves the problem of an expensive objects. I hope you are thinking at this moment that this is amazing. Because it is!
Because of these two concepts of Tokenization and fractionation, many unique objects are sold at much better prices. And then creative minds of salesman and banks use these tools many different ways to facilitate sales, investments and other forms of commerce. This is truly revolutionary. There are many details like security, oracles, smart contracts and trust less commerce I didn’t elaborate on, and they are important, but hard to learn. This summary provides you enough insight to decide if you want to learn more.
A short summary of the concepts non-fungible tokens, tokenization and fractionation explaining why they are important main concepts to understand the future of commerce called decentralized finance.
Written by @shortsegments!
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