What are NFTs?
NFT stands for non-fungible token. That tells you what the acronym is short for, but it doesn’t really tell you what the actual concept is.
Whether you call it an NFT or a non-fungible token, it’s a digital token. It’s based on blockchain technology, just like cryptocurrency is. However, whereas Ethereum or Bitcoin provide a digital form of money, an NFT can be a digital asset that represents real-world items. These can include collectibles, artwork, or even items in video games.
The ‘non-fungible’ part of the name simply means that the NFT can’t be traded for something of equal value or nature. Cryptocurrencies are fungible because you’re trading money for money. Alternatively, NFTs are usually either:
- One-of-a-kind items
- Part of a limited series
Many digital creations have a seemingly endless supply, and that curtails their value. How many memes or GIFs can you find to share with friends on Facebook? What about emoji? There are so many of them that it’s easy to get lost in them.
On the other hand, NFTs share similarities with rare physical collectibles, be it individual pieces of artwork or sports memorabilia.
Types of Non-Fungible Tokens
NFTs can take many forms. Some common examples already used include:
- Art: There are still plenty of people sculpting, painting, and making things with their hands. However, the world is living in a digital age, and art has entered a whole new medium that in fact has no actual physical medium. NFTs let artists sell unique pieces that only have one owner at a time.
- Music: Private recordings and customized songs for just one person are sometimes intended for an audience of one. An NFT isn’t an MP3 file that can be downloaded by millions of people.
- Videos: Sports highlights often fall into this category, but still images are closely related, too. The world of sports collectibles has been a huge driver in the growing popularity of NFTs to garner attention and headlines.
- Virtual Avatars: Video game skins are very popular items in many franchises, whether they are played on a console, computer, or mobile technology. The luckiest fans get to wear something that no one else in the game will be ever be seen in because there is only one.
Other kinds of NFTs have included GIFs, designer sneakers, and even a tweet.
How does it work?
Most NFTs are based on Ethereum technology, which is one of the two most prominent cryptocurrencies available, aside from Bitcoin. Any blockchain technology revolves around a public ledger that is distributed around the world to record all transactions.
When an NFT is minted, it has unique data that lets everyone know who owns the token. It might also list how much they paid for it and when they bought it. This information has to align with the distributed public ledger that blockchain technology relies on.
NFTs have different purposes that are based on the specific type that they are. However, one very common thing is how they mean a form of bragging rights. Owning a unique and rare item of potentially high market value is seen as a status symbol.
If you want paintings to hang on your wall, you can get cheap mass reprints at many places, ranging from garage sales to local big-box retailers. You won’t spend much on your desired decor, but you’ll also be hanging something thousands of other people have. Someone who buys a Picasso to put over their fireplace has something no one else does.
Likewise, if you want a picture of your favorite athlete doing something spectacular on their field of play as your computer background, then you can find hundreds of such images online. Someone who buys an NFT of that athlete owns the only copy that a photographer took at that particular moment.
Content creators use NFT technology to monetize their creations and make money off of them. NFTs let artists bypass galleries and the fees or commissions associated with them. For that matter, they can even program royalties into the metadata of an NFT, so they make money every time that an NFT is sold from one user to the next.
The Future of NFT!
One thing is for certain, and that is that NFTs are here to stay. Whether or not they are a bubble is a matter of debate, and only time will tell if prices are fueled by the novelty of the technology. However, NFTs will be created, bought, and sold for years to come, just like there have been markets for collectibles ranging from paintings to sports cards long into the past.
Some NFTs go for serious money, too. View Top NFTs sales history:
- Charmin offered NFTP, or non-fungible toilet paper for charity fundraising.
- Taco Bell likewise sold NFT art, with bids getting as high as $3,500.
- Nyan Cat is an NFT based off of a decade-old GIF of someone’s cat with the body of a pop tart. It sold for almost $600,000.
- NBA Top Shot sells NFTs based on the professional sport, and they’ve had over a half a billion in sales already. One LeBron James highlight sold for approximately $200,000 alone.
The next time you hear about NFTs in the news, you should have some idea what they are. In fact, in normal conversation, you can now explain to others:
- NFT stands for non-fungible token.
- NFTs are unique digital assets with only one owner at a time.
- There are many kinds of NFTs.
- The work is based on the same technology as cryptocurrency.
- People use NFTs to make money and buy them as status symbols.
- NFTs are here to stay.
Use all this information to decide if NFTs are something that you would like to own or invest in.
Disclaimer: Cointia content is meant to be informational and should not be interpreted as investment advice.