In the dark old days before blockchain technology existed, it was hard for people to verify the authenticity of any unique asset they own without the help of an intermediary or trusted third party.
Physical assets like ID cards and concert tickets could be forged, while goods like luxury bags and olive oil seem to be counterfeited on a regular basis.
Digital assets have it worse as pictures can be copied and pasted, while songs and published materials can easily be downloaded without the owners getting a cent from the distribution.
Enter Non-Fungible Tokens (NFTs), pronounced as “en eff tees”, which are digital assets that are stored on blockchains.
WAIT. A NON-FUN WHAAA?!?!
What is an NFT?
Non-fungible tokens are representations (tokens) of real-world information and physical or digital assets.
To put it another way, assets and/or information are “tokenized” using cryptography and are stored on a digital ledger with all the advantages of blockchain technology.
Creating or “minting” NFTs on blockchains allows NFT owners to have a secure, decentralized, and immutable proof of ownership of a unique asset and all it represents.Many NFT creators take tokenization one step further by including metadata or attaching conditions around the digital asset’s ownership and future distribution.
NFTs Are “Non-Fungible”
Non-fungible tokens (NFTs) are called non-fungible because they’re not… fungible.
That is, each NFT is unique and cannot be substituted or interchanged with another.
“Non-fungible” means that something is unique and can’t be replaced with something else. Like your mother.
A dollar bill, despite each having a unique serial number, is still fungible because any other one-dollar bill would still be worth one dollar and people won’t think twice about exchanging one for another.
Ditto for a cup of brown sugar in your pantry, which is indistinguishable and interchangeable from any cup of brown sugar in the grocery store.
On the other hand, a child’s drawing of her family on the fridge is non-fungible because there’s nothing else like it, and is not interchangeable with another child’s drawing of a butterfly.
Or any drawing you’ve ever seen, for that matter.
Your passport is also non-fungible because it contains unique information that makes it different from all other passports.
An NFT is a unique digital identifier that is recorded in a blockchain and is used to certify authenticity and ownership.
NFTs are NOT cryptocurrencies
Just because NFTs are cryptography-based assets and use blockchains doesn’t mean that they are considered cryptocurrencies.
For one thing, cryptocurrencies are fungible. One ETH is as good as any other ETH across crypto markets while an NFT is unique and can’t be substituted by another.
NFTs are also created using a different token standard.
Popular tokens like ETH, MATIC, and SHIB use the ERC-20 standard on Ethereum’s blockchain.
Meanwhile, most of today’s NFTs typically follow the ERC-721 or ERC-1155 token standards that have more specific rules around establishing ownership and transferring tokens.Lastly, NFTs can’t be traded on your usual crypto exchanges. Instead, you’ll have to browse through NFT marketplaces and establish an NFT-compatible wallet if you want to own one.
If NFTs can’t be used as currencies, then why the heck are they on blockchains?