Exploring the Basics: An Introduction to Different NFT Types

October 19, 2023

NFTs are non-fungible digital tokens based on blockchain technology, similar to cryptocurrency. They cannot be replaced or substituted for one another.

NFTs have gained interest from musicians, allowing them to pocket roughly 100% of the money they generate — without record labels and streaming platform cuts. Video game developers have also embraced NFTs as in-game items.

Utility Tokens

Non-fungible tokens (NFT) can offer real-world benefits to their holders. Fashion, for example, has seen a surge in brands tokenizing items like Gucci bags and Dior t-shirts to allow consumers to buy a digital version of their top wishlist item at a fraction of the cost.

Each NFT has a unique identifier directly linked to one blockchain address. This means that even if 5,000 NFTs of the same item are minted, each can be differentiated by its owner and traced through the blockchain.

NFTs are often used as a medium of exchange on a platform, with users redeeming them for access to premium services or content. There are different NFT types that you need to know. Discount tokens are a popular form of this, where they reduce the cost of a transaction, while subscription tokens allow for the repeated use of specific features within an app or game. NFTs can also be a virtual currency, allowing users to unlock new items or levels within a game. These NFTs benefit gamers who want to customize and enhance their avatar or experience.

Security Tokens

NFTs are unique digital representations of real-world assets stored on the blockchain. They can be programmed to have specific features, such as royalties or ownership rights, directly written into lines of code.

They can also be used to secure intellectual property. Attaching an NFT to an item of creative work allows you to create an immutable record that details who conceived or invented a product. A famous example is that many people use their NFT artwork as profile pictures or avatars on social media platforms.

However, there were other use cases for NFTs. NFTs were originally used to tokenize physical assets like real estate, allowing multiple people to own a share of an expensive painting rather than just one piece. This democratization of investment can increase value, sales, and scalability. Music and media NFTs are another excellent example, with artists generating revenue from selling their one-of-a-kind works. At the same time, fans get to experience them on different platforms. This can be particularly useful for aspiring artists who might need more resources to sell their careers in traditional channels.

DAO Tokens

A decentralized autonomous organization, or DAO, is a new management structure built on blockchain technology. These structures can resemble traditional businesses, but they also automatically enforce operating rules via smart contracts and are open to all users instead of just a few members.

They may raise funds by selling tokens that grant holders voting rights or through other methods. Once they have the funds necessary to enact governance, they can begin making decisions and investing in other assets.

Typically, the weight of a vote is proportional to the number of tokens held by a participant. This allows for a more equitable voting process than a traditional company, which relies on the majority rule.

DAOs have created a buzz among crypto fans, but they're still in the early stages of development. The 2016 collapse of The DAO, which amassed 3.6 million ether (ETH), the cryptocurrency that powers Ethereum, to buy rare NFTs, is often cited as a cautionary tale. Still, the concept of a DAO is intriguing and could eventually change how people work in organizations.

Breeding Tokens

One of the most exciting aspects of NFTs is how they can be bred to create new ones. Breeding games let players pair two NFTs together to produce offspring that can be sold or traded for cash. This is a great way to introduce players to the game and gives them something to work towards as they build their strategy.

Miami-based AEXLAB has taken this idea even further with its 'VAILIENS,' animal NFTs that evolve in the game's 3D VR world. It's an exciting evolution of the NFT marketplace and provides a captivating combination of control, luck, and anticipation.

These gaming NFTs are perfect for web3 and could open up many potential use cases for this exciting technology. For example, these can be used to 'buy' virtual land or pets that grow and evolve. They can also be paired with real-world items like cars that produce and upgrade as they are driven. There are plans to combine breeding NFTs with virtual reality so gamers can 'physically' interact with their creatures.

Game Tokens

Unlike an ERC-20 token with the same properties and value as all other copies, NFTs are individual and unique. This gives them the ability to be authenticated by checking their contract address. These are often used as a form of ID for digital goods or in-game assets, for example, sneakers, art, plane tickets, university degrees, or commercial real estate.

NFTs that represent gaming assets are one of the most popular. These include characters, avatars, equipment, add-ons, or original content. For instance, the upcoming blockchain-based game Sensorium Galaxy will mint NFTs for its users that can be used to own and trade a range of in-game items.

NFTs that enable actual ownership of virtual land are another big draw for many gamers. These are significant drivers for the popularity of games like CryptoKitties and Spells of Genesis. People are willing to pay a premium to buy these and have access to the associated community and future perks.


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