The cryptocurrency space is constantly evolving and exploring unforeseen use cases.
Since late 2017, one emerging use is cryptocurrency collectibles. Think Beanie Babies, rocks, snow globes, vinyl records, and old coins.
The difference now is that the industry is introducing digital collectibles as opposed to physical ones.
The most prominent catalyst for the crypto collectible movement was Cryptokitties, which launched in 2017.
Cryptokitties is a source of cute, digital kitties that people can breed, buy, and sell. The most expensive cryptokitties sold for over $100,000 of Ether!
The popularity exploded to a point that the entire Ethereum blockchain was virtually stale due to transaction overload. Pretty intense.
The concept of cryptocurrency collectibles is difficult to grasp at first, but in this article, we’ll clear up all your questions.
They are often a large part of blockchain gaming, so you’ll want to read on to learn more!
Fungibility and Non-Fungibility
Fungibility is the basic differentiator between currency-focused cryptocurrencies and collectible-focused ones.
Crypto collectibles are non fungible. Let’s first understand what fungibility is.
Fungibility is when something of value can replace or be replaced by another identical item – they are interchangeable.
For coins such as Bitcoin, Ethereum, Litecoin, Monero and tokens such as Golem and OmiseGo, fungibility is a key factor.
The same goes for USD, EUR, and all government-backed currencies – they must be fungible.
For example, if I have a $20 bill, then I can go buy a water bottle for $1.50 and get back change.
The values here are mutually interchangeable and the currencies are all the same. It doesn’t matter who owns which particular dollar, as long as balances equal out.
On the other hand, if I go to purchase a water bottle for $1.50, and offer two pencils, then the cashier will most likely not take my money.
Pencils to water bottles are not fungible like money to water bottles is. The same goes for Beanie Babies, vinyl records, or any other collectible.
Each collectible is not fungible with one another.
You can break down a dollar, but you can’t break down a Cryptokittie!
Understanding Tokenized Assets
Since there are differences in tracking ownership and ensuring that each collectible is unique, there are technical differences between standard tokens and collectible ones.
The typical token standard for most Ethereum-based projects is ERC-20. ERC-20 is the token standard that is compatible with most exchanges and wallets so you can easily send tokens to various destinations.
They generally represent currency use cases to purchase in-app items.
If most tokens use the ERC-20 token standard, then what standard do collectibles use? Great question!
Collectibles commonly use the ERC-721 standard.
The ERC-721 wallet was made thoughtfully, in the sense that there are some similar parameters to ERC-20, so that wallets can still display basic information about the collectible.
Much like how a water bottle and pencil are not fungible, neither are ERC-721 and ERC-20 tokens.
Thanks to following some basic standards, the data can still be stored on the same blockchain and data can be extracted across all assets while ignoring what type of asset it is.
On the other hand, there are some differences. The primary differences are that it tracks ownership, approved ownership when transferred, and total supply.
These are self-explanatory, but must be explicitly noted in the technical specification.
Tracking and approving ownership are essential pieces of information needed so that each holder of an asset can confirm that they are the holder of a unique asset.
When a collectible is transferred to another user, this data is broadcasted to the network, verified, and then the event is completed.
While on the topic of crypto collectibles, there is one token standard, in particular, that has been piquing our interest.
This token standard can apply to collectibles and in-game items as a whole. We are referring to the ERC-1155 standard.
Before you roll your eyes and think we are getting technical, we aren’t. We’ll explain why we find ERC-1155 promising so even a gym-going-meathead will understand.
To date, the most common types of token standards on Ethereum are ERC-20 and ERC-721. ERC-20 is completely fungible, while ERC-721 is not.
An ERC-20 token is like a Chuck-E-Cheese token. You can give the token to a friend and this transfer of ownership doesn’t need to be tracked.
An unlimited number of Chuck-E-Cheese tokens can be created as long as people want to buy them.
They are simple utility tokens and have no scarcity value associated with them. They are all worth the same and can be freely traded between people.
An ERC-721 token, on the other hand, represents collectibles. This means that there is a finite amount of them that exist, creating more of a market as well as a system for tracking ownership – to an extent.
Put simply, if an ERC-721 represent a rare beanie baby, then you wouldn’t want to trade your rare ERC-721 collectible with someone who has a less rare one.
These two ERC-721 tokens are not of equal value, as two ERC-20s would be.
But, what if we can make things more flexible? Well, thanks to ERC-1155 we can!
ERC-1155 is a configurable token that allows creators to define the parameters when creating them. For example, in MMORPG video games, such as World of Warcraft, or even shooters like CS:GO, there is some gear that is epic and highly rare, and other items which have virtually no scarcity value.
Then, there are items in between that are gradually more or less rare.
Essentially, game creators will be able to more easily make blockchain-based games with one less headache.
Rather than searching for individual token standards that match their particular needs, they can flexibly create assets which are more or less fungible than others.
If a game is being created with hundreds of thousands or millions of items in it, then you can imagine the headache being saved with the flexibility that ERC-1155 provides.
Additionally, individual token standards generally need to be compatible with their own individual smart contracts.
So, if a gaming company needs 100 different tokens for different items, then you can imagine the issues it can cause with deployment and tension it can cause on whichever blockchain it runs with.
It can provide allow for more scalability as well as games with more intricate items of different scarcity values.
As gaming and blockchain enthusiasts, we are excited to hear about new developments like this, with the hope that it will help push blockchain-based gaming forward towards mass adoption.
Enjin seems to be making some progress with this standard, with the leadership of CTO Witek Radomski.
Implications of the Technology
Digital collectibles should begin to open your mind towards the use cases that blockchain can offer outside of the monetary use like Bitcoin.
The blockchain is simply a ledger, and data representing virtually anything can be stored in the ledger – it all comes down to the needs of the community and how creative the engineers behind the scenes want to be.
Aside from collectibles like Cryptokitties, Cryptopets, Etherrock, ChainMonsters, and many others, there is the rising of security tokens.
Similar to how we learned that ERC-721 collectibles have different requirements, so do security tokens, commonly used under the ST20 standard.
With securities, such as stocks, ownership must be tracked, shares are not fungible like currencies, and dividends are paid out to shareholders.
Tracking ownership and issuing dividends is another use-case that must be technically implemented and made as compatible as can be with existing technologies.
All in all, we hope your perspective on cryptocurrencies has changed with learning about these digital collectibles.
Blockchain technology is new, flexible, and its future use-cases will continue to evolve in ways no one can foresee.
Alternatively, coins offered in a cryptocurrency like Bitcoin Hex would not be considered digital collectibles.
Visit our crypto collectible listings and make your offer on some rare and scarce digital assets!