NFTs, or non-fungible tokens, are digital tokens that exist on a blockchain and represent the ownership of a digital asset. Digital assets include pieces of art like a photo, a video, or any type of digital file.
A blockchain is a public database that keeps track of digital assets and transactions. Although there are many types of blockchains, the most commonly used for creating and trading NFTs is the Ethereum blockchain.
Each NFT on the blockchain is assigned a unique ID made up of a random combination of numbers and letters. This unique ID is linked to the digital asset , making up a non-fungible token.
Some NFTs have sold for thousands or even millions of dollars in the recent 2021 crypto bull run. This pixelated digital image, known as a CryptoPunk, was sold for a value of over $7 million USD! CryptoPunks was originally created in 2017 on the Ethereum blockchain and consists of a collection of 10,000 unique digital characters.
Creating and selling NFTs have also become popular in mainstream media. Industries including sports and entertainment, as well as organizations and celebrities have joined the trend. Major names include:
- The NBA with their NBA Top Shot platform
- Football legend Tom Brady launching a platform called autograph.io
- Pop singer Katy Perry creating NFTs on the Theta network, expected at the end of 2021
- Fox Entertainment investing $100 million into a “creator fund” called Blockchain Creative Labs
- Marvel Entertainment to offer digital collectibles worldwide
Characteristics of Non-Fungible Tokens
Fungibility
To understand NFTs, we must differentiate the difference between fungible and non-fungible.
When an asset is fungible, a unit of that asset is identical in characteristics and qualities of another unit of that same asset. A dollar bill, for example, is fungible because it is interchangeable with another unit of itself. Your dollar and my dollar are both the exact same thing.
An asset that is non-fungible will have its own unique characteristics and qualities, A non-fungible asset is also impossible to replace. Some physical examples of non-fungible assets include the Mona Lisa, a one-of-a-kind sports card, or even an entire house on a block.
Because of blockchain, the creation of digital non-fungible assets are now possible. Intangible assets like digital art or a video can exist as a unique item and be limited in quantity.
Digital Scarcity
The digitization of intangible assets in the form of NFTs creates digital scarcity, providing value for being one-of-a-kind. Unique tokens on the blockchain provide proof of originality and authenticity that can be differentiated from any other token.
Creators and holders of an NFT can also sell or trade their token for monetary value. The innovative technology of blockchain has opened up an entire new market for creators to develop, brand, and monetize their creations.
Authenticity
Each NFT can be verified and traced back to its original owner because blockchain keeps a record of its transactions. Like a digital paper trail, anyone can see all the transactions of an NFT through a blockchain explorer like Etherscan.
Tradeability
What is the point of owning a unique digital piece of art if you can’t trade it? NFTs can be sold and traded with ease on NFT platforms for crypto and real money.
Where Can I Buy and Trade NFTs?
Multiple websites have been created where you can create, buy, and trade NFTs. You will require a digital wallet, some Ethereum, and a browser extension like Metamask to buy and sell NFTs. Some popular platforms include:
- OpenSea
- Rarible
- SuperRare
- Mintable
- Theta Network (coming soon)
What Determines the Price of an NFT?
The price of an asset is often subjective and depends on what someone will pay for it. Just because you list something for a million dollars does not mean it is worth a million dollars. Some factors that can influence the price of an include:
- The person, company, or brand who created it
- Market demand
- How good or bad the cryptocurrency market is doing
- How cool the NFT looks
What is the Future of NFTs?
The popularity of NFTs has attracted big names and creators to take notice of blockchain and cryptocurrencies. Only time will tell how NFTs evolve and make an impact in the digital landscape.
