The terms non-fungible token (NFT) and digital collectible are increasingly used interchangeably. Not only is this incorrect, but it’s also reductive. The term “digital collectible” minimizes the potential of NFTs as an architectural software primitive, i.e., as a set of code that can be repurposed to build more sophisticated programs or interfaces.
For a reasonably simple analogy, think of NFTs as websites. Anyone with a bit of coding knowledge can create a website. They are “hosted” using a unique identifier (URLs vs. contract addresses), can store and display data (text, images, video), and can execute code to perform desired outcomes.
Now, think of digital collectibles as blogs. Blogs are a small and distinct part of a website. They store basic information and aren’t interactive — effectively read-only sections. Blogs don’t even begin to capture all of the potential applications and advanced functionalities contained within websites — from e-commerce capabilities and chat features to search bars, dynamic pricing, and more.
With this comparison in mind, let’s dive a bit deeper.
Defining digital collectibles
As outlined above, digital collectibles are just one use case of NFT technologies. Most often, a digital collectible is an NFT that contains some sort of media file (like a digital image, video, or song) that has a few properties that set it apart from other digital collectibles.
For example, collectible avatars typically come in different colors and shapes. These unique features increase the rarity of the digital collectible. In so doing, they typically increase both their collectibility and economic value.
Over the last few years, we witnessed the meteoric rise of digital collectible NFTs. They generated tens of billions in trading volume in 2022 alone, nearly matching the 2021 NFT frenzy despite the so-called “crypto winter.”
There’s NBA TopShot, Cryptopunks, Bored Apes, and dozens of other massively popular projects that use NFTs to create digital collectibles. The popularity of these high-profile projects is the driving force behind the misconception that the terms “NFT” and “digital collectible” are synonymous — they top the market charts and drive the news cycles.
But NFTs are more than digital collectibles.
NFTs are a technology — not a simple use case
NFTs are a new fundamental software primitive for decentralized ecosystems. At their core, they are unique digital capsules containing data and programmable logic specified by the creator. Much like websites, these capsules can be used to run large-scale applications or simply display a picture with some text describing the image.
The true power and potential of NFTs is derived from their ability to be freely and securely utilized, transacted, and transferred across the world instantaneously using any compatible platform. Ownership of these powerful capsules (NFTs) can be granted, traded, and sold at the current owner’s sole discretion, providing the next owner with all the exclusive capabilities and value enjoyed by the original owner.
One of the key premises of all major innovations (societies, laws, networks, internet, crypto, etc.) is fundamentally honoring property rights, and NFTs are an enormous technological advancement in the world of honoring property rights. This is especially true in the vast digital worlds we now live in.
This distinct feature of sovereignty enabled by NFTs is what gives this new technology near-limitless potential in terms of application. NFTs provide creators, consumers, and businesses with all of the capabilities and powers of a website with the additional benefit of complete autonomy in the form of ownership rights.
The potential applications of NFTs will range from digital collectibles and in-game items to legally binding ownership rights of real-world assets — like cars and yachts — and everything in between. At Dibbs, we recently compared the all-time trading volumes of OpenSea’s top 100 collections with the top collections over a 30-day period in Q4. We then analyzed each collection to determine how utility types are evolving. The data revealed that access to exclusive content (e.g., comic books) was the fastest-growing utility for NFTs.
Sounds like more than a collectible, right?
Anything of value that a human wishes to display, use, transfer, or transact online could soon find itself inside one of these new digital capsules in the not-so-distant future.
However, the terms “NFT” and “digital collectible” will ideally one day fall quietly into the backdrop of conversations. After all, people don’t glorify streaming technology when they review the latest Netflix hit. Rather, they focus on the movie itself. In the same way, we should let the use cases and experiences enabled on top of NFT technologies speak for themselves.