While the NFT craze revolves around digital assets the innovation is well suited for real-world assets.
Check how I used the technology to tokenize the ownership of one of the rarest coins minted on the territory of Poland.
What is an NFT
An NFT, non-fungible token is a token that is unique and therefore can represent assets unique in their nature.
If you have an empty canvas and you compare it to another empty canvas of the same size you cannot tell the difference. They are the same and this is why they are not unique.
However, if a renowned artist draws a painting on that canvas, it becomes one of a kind. It becomes unique.
Technically making a token non-fungible is quite straightforward: you assign a certain identifier, that will make it different from all the others.
The token without attributes is the same as another token without attributes, while the token with the Id of 1 is different from the token with the Id of 2, so they can represent 2 different things.
The fungibility of real-world coin
The issue with the fungibility of the coins is… that they are fungible by nature. Actually, the goal of the mint is to make all the coins look the same. The cent should look exactly like another cent.
With time most of the coins slowly deteriorate by touching, careless handling, storage, while some are lucky enough to stay uncirculated.
While the differences between the condition of the coins are one of the key factors determining their value, in most cases they are not sufficient to make them unique.
Grading services to the rescue
Coin grading services exist since the early 70' and meet the need of the coin collectors to verify the authenticity and grade of the coin with an expert's eye.
Among the most popular and renowned are Numismatic Guaranty Corporation (NGC) and Professional Coin Grading Service (PCGS).
After grading the coin is encapsulated into the tamper-evident holder with information about the type of the coin, its grade and its unique certificate identifier.
Coin grading allows not only finding out all the statistics about the particular type of the coin, how rare are certain grades of the coin, but is essential for our purposes - assigning a unique certificate makes the coin non-fungible, allowing being represented by an NFT.
But actually, what does it mean to tokenize a coin?
Tokenization is the process of converting the asset into a digital token stored on the blockchain. In our case, the ownership of the coin becomes represented by the token. The person that owns the digital token becomes also the owner of the coin.
Benefits of tokenization
Imagine your right to the coin is stored as a token on the blockchain platform. In case the coin is stolen from you, you still have proof that you are the owner. If the coin appears on the market, you can easily claim your rights.
This would work even better if the tokenization becomes a part of the grading process in the grading company. The option to store and update information about the blockchain identity of the owner would allow full tracking of the coin history.
2. Another attribute to add numismatic value
As mentioned before many factors decide on the coin value:
- Mintage, how many coins were created.
- The condition of the coin: does it have scratches, signs of being in circulation?
- Grading: was the coin graded, in which company?
- Demand: how many people are collecting that particular type of coin?
- Number: in the case of notes the one with the lower number will be worth more than the one printed later.
- History: was the coin in the past a part of the collection of some renowned collector, is the coin a witness of some important events in world history?
It is easy to imagine that in future the coin with an NFT will be worth more. The coin with an early NFT will be worth more than the one added later.
3. New ways of trading offered by the blockchain
I love the idea presented by Jeff Garrett in his article on fractional coin sale. The rare coins can be subject to investment. Blockchain will enable you to buy a share in a coin you expect to increase in value, but you would not be able to buy as a whole.
But blockchain offers much more. Even now you can follow a particular NFT and be able to buy it when the owner decides to put it on sale.
Please feel invited to create an account on the Ethereum platform and follow my first coin tokenized as an NFT.
Tokenization step by step
So you have a coin and want to tokenize it?
- Make sure the coin is rare anyway! As of the day of writing the cost of tokenization is pretty high. The transaction last week cost me around 80 dollars.
- Choose the blockchain platform, and decide whether you want to use an already existing project that allows creating an NFT or you want to do everything from scratch including smart contract deployment. In my case, I used Rarible.com as it allows creating an NFT without putting it on sale. It is perfect for a proof-of-concept and also sharing your collections with the rest of the world. If you plan to sell your coin immediately you may check OpenSea.io. The New NFT project appears every day, so check what is trending as of the day of reading the article.
- Make sure you successfully transferred the ownership of your coin to the token. In this case, I publicly state that my coin is represented by the token. In your case, it may require legalization by a notary.
- If you try to sell an NFT make sure you can also provide the physical coin to the new owner. For sure in case of the coin tokenized by me, the buyer could contact me easily on LinkedIn, Twitter and other social media, but it is not the case if the owner is anonymous.
About the coin itself
Anyway, what is the coin tokenized by me as a first?
I have chosen a witness of the tragic Jewish, Polish and German history — 20 marks coin in a limited mintage of 600 in Lodz Ghetto designed Morduch Glazerk. Please check the articles in Wikipedia and Yad Vashem Center.
Setting the standards
While the Rarible platform was great for the proof-of-concept, multiple features would allow better rare real-world tokenization and trading.
I will try and list them in a form of suggested solutions in a separate article.
While currently, NFT mania is all about digital assets, pictures of funny cats and dogs, it is also well-suited to more traditional use cases. One of them is definitely the rare coin market. In a couple of years, I am sure a blockchain NFT will be a preferred way for collectors to share their collections with the audience, trade and invest with an NFT being an additional factor to add numismatic value.
- Jeff Garrett. Cryptocurrency, Non-Fungible Tokens and the Rare Coin Market, 2021 Mar 26, Available from https://coinweek.com/coins/marketplace/jeff-garrett-cryptocurrency-non-fungible-tokens-and-the-rare-coin-market/
- Devin Finzer. The Non-Fungible Token Bible: Everything you need to know about NFTs, 2020 Jan 10, Available from https://opensea.io/blog/guides/non-fungible-tokens/
- Wikipedia. Lodz_Ghetto_mark, 21 Mar 2021, Available from https://en.wikipedia.org/wiki/Lodz_Ghetto_mark
- Wikipedia. Lodz Ghetto, Available from https://www.yadvashem.org/holocaust/about/ghettos/lodz.html