What Is a Non-Fungible Token?
The concept of digitizing and trading collectibles has been around for a long time but was not realized until the birth of the Ethereum blockchain. Now, everyone from artists to high-level business executives are cashing in on these unique, digitized assets called NFTs, or Non-Fungible Tokens.
So, what exactly is an NFT?
It is a cryptographically unique, non-interchangeable digital asset.
The term "fungible" means that something is freely exchangeable or replaceable with something else of the same value. Bitcoin, for example, is an example of a fungible token. The inverse, “non-fungible”, means that there is only one version that holds that value. Think of it like a rare painting where there is only one real version that exists.
Understanding How NFTs Work
Non-fungible tokens (NFTs) are created through a similar process as fungible tokens like Bitcoin - a blockchain-based token with unique data that determines the characteristics of the NFT is created. However, unlike fungible tokens, NFTs can only exist on the blockchain in one instance at a time.
Tokens on the blockchain exist in perpetuity, each with a special identifier. Their integrity stays intact thanks to transparent and secure blockchain transactions. NFTs can take the form of almost anything that can be digitized, including paintings, illustrations, music, games, and videos.
NFTs have even reached the sports world. There is an entire online store, Top Shot, for selling NBA NFTs. One video of Lebron James dunking sold for over $200,000. Microsoft has also recently launched a browser game that rewards players with Minecraft NFTs for use inside the wildly popular game.
If you’re still trying to wrap your head around NFTs, another way of understanding this new token is to consider them more like an asset and less like a currency. Whereas currency represents units of value, products represent units of ownership. Each NFT has a unique identity, trackable on a blockchain ledger to ensure its authenticity.
Evolving NFT Marketplace
The popularity of blockchain-based digital assets has risen lately thanks to mainstream exposure.
According to NonFungible.com, the combined valuation of non-fungible tokens sold in Q1 of 2021 was $2 billion, which was a huge jump from $5 million in the previous quarter.
While the regulatory status of NFTs is murky and speculative, it is clear that NFTs may become a fixture in the investment market moving forward. A growing number of investors are banking on the potential of NFTs and blockchain technology to shake up the current landscape, although the future remains largely unknown.