Well, unless you’ve been living under a rock, you must have come across NFTs, and chances are that you’ve seen pictures of a funky chipmunk being sold for around $24.4 million. Considering all the hype and misinformation on the internet. It can be pretty confusing and it is only natural to jump to the conclusion that NFTs are dumb.
But are they really? After all, NFTs are just jpegs that can be saved with a right click, right? Actually, no. To be fair, though, the idea of an NFT is fairly difficult to understand. We are going to make it clear and a lot easier for you by breaking it down into steps. But before getting straight into NFTs, let’s understand a few things related to them.
Understanding Fungible and Non-Fungible Assets
To explain it simply, a fungible asset is one that can be exchanged with another asset of the same kind. The most common example of a fungible asset is our currency note, where a ₹200 bill can be replaced with another ₹200 bill. Here, a 200 rupee note has an absolute value and can be exchanged for the same amount.
On the other hand, we have non-fungible assets, where the assets have no absolute value and their value depends upon a lot of factors that can add or subtract value to the asset. Examples of such an asset would be a car, antique items, or any owned property.
For the former, it is justified to exchange a currency note for another currency note of the same value. However, the same is not justified for the latter since it has no absolute value.
Fungible and Non-Fungible Assets on a Blockchain
Since we now understand the difference between fungible and non-fungible assets, we can begin with understanding NFTs. But before that, let’s do a quick recap of the blockchain.
A lot of you must already be familiar with blockchains. If you’re not, you can think of a blockchain as a public database that contains a list of all transactions that have ever occurred on it. For this reason, data once stored on a blockchain can never be deleted, and so for this reason it is used for making cryptocurrencies.
If you look closely, you’ll see that cryptocurrencies are actually fungible assets that exist on a blockchain. Since we have fungible assets on the blockchain, we must also have non-fungible assets, right? Right! NFTs literally stand for Non-Fungible Tokens, and as you can probably guess by now, they are nothing but non-fungible assets that exist on a blockchain.
Why Are NFTs So Popular?
The sole reason behind the popularity of NFTs is that they provide proof of ownership. You see, data gets stolen all the time, especially digital data. NFTs provide digital proof of ownership as non-fungible assets, so they can be used for anything that exists digitally.
Digital art is one place where NFTs shine because they help artists get the true value for their work. NFTs are also being used by Metaverse companies, where they convert game characters, skins, and even in-game assets into NFTs. A good example is the game Decentraland.
Can You Copy An NFT?
The short answer? No! You can right-click and save it as an image, but that doesn’t mean you have saved the NFT. You have only saved the jpeg, which has no value. You see, an NFT can only exist inside a blockchain if it has an ID through which it can be identified. What you save through right-clicking is just a jpeg, not an NFT.
Can We Only Make NFTs For Digital Assets?
NFTs are non-fungible tokens. It can be an art piece, a piece of software, or an in-game asset. In theory, we can even certify non-digital assets and things that exist outside the blockchain.
Though we haven’t seen anything of that sort yet, it doesn’t mean we won’t in the future. Web3 is still in its infancy and people have just started exploring the different ways they can use it. The best part about it is that we are still early.
After reading this blog, you must get a fair understanding of what NFTs actually are and why they are becoming so popular.
To summarise, NFTs are non-fungible assets that exist on a blockchain and provide proof of ownership. The ability to have ownership of assets digitally is really powerful and we have only scratched the surface.