NFTs are the hot new thing in the blockchain and cryptocurrency world. Think of an NFT as a digital collector̵
NFTs are “non-fungible tokens”
The abbreviation ‘NFT’ stands for ‘non-fungible token’.
An NFT is a token on a blockchain, but unlike a typical cryptocurrency, it is not replaceable. A blockchain is a secure, shared ledger that keeps track of who owns what.
RELATED: What is a “blockchain”?
What does “non-fungible” mean?
If something is fungible, it is interchangeable. Money, for example, is fungible. There is no difference between one US dollar and another US dollar.
Gold is also considered a expendable resource. One ounce of pure gold is equal to another ounce of pure gold. Shares of a company are also fungible: one part of Facebook is the same as another part of Facebook.
Cryptocurrencies such as Bitcoin are also expendable. One bitcoin is equal to another bitcoin.
If something is non-replaceable, it is non-interchangeable. For example Leonardo da Vinci’s Mona Lisa is non-replaceable. There is only one original copy of it Mona Lisa in the world.
A copy of a trading card is also not replaceable. It is a limited edition collector’s item. That’s what NFTs are: a kind of digital collector’s item.
How NFTs Work (Remember CryptKitties?)
CryptoKitties were one of the first major NFTs. Every cat is unique. A CryptoKitty is a “digital asset” that is stored on a blockchain. Rather than the blockchain registering your ownership of a cryptocurrency token such as Bitcoin (BTC) or Ether (ETH), it registers your ownership of a specific, unique token that represents the cat.
“Owning” a CryptoKitty works the same as “owning” a bitcoin or any other cryptocurrency token. You own this digital asset because the collaborating blockchain says you do – or rather, the blockchain says whoever has your private keys owns them. You can use your private keys to ‘issue’ a cryptocurrency and assign ownership of it to someone else in exchange for cash or services.
Likewise, you can use your private key to assign ownership of a CryptoKitty or other NFT to someone else. You may be trading the NFT for a replaceable cryptocurrency (like Bitcoin), replaceable money (like US dollars) or another NFT (like another CryptoKitty). The new owner is registered on the blockchain.
RELATED: What is% $ a CryptoKitty?
Most NFTs use the Ethereum Blockchain
Most NFTs – including CrypoKitties – use the Ethereum blockchain. Ethereum is a cryptocurrency, but the blockchain can also store other data, such as NFTs. CryptoKitties are technical ERC-721 tokens stored on the Ethereum blockchain.
Other blockchains could also implement support for NFTs.
What are some other examples of NFTs?
So let’s sum it up: an NFT is a unique token stored on a blockchain. It’s like a bitcoin or an altcoin, but instead of being an exchangeable currency, it’s a unique digital item – in the same sense that a bitcoin is a digital item.
Let’s take a look at a few more examples of NFTs:
- Twitter CEO Jack Dorsey is selling his very first tweet as an NFT. Someone is offering $ 2.5 million to own it.
- The NBA partnered with the creator of CryptoKitties to launch NBA Top Shot. You can purchase NBA game highlights videos in the form of NFTs. For example, a LeBron James highlight once sold for $ 200,000.
- Grimes sold several videos for a total cost of $ 5.18 million. A unique video called “Death of the Old” cost $ 389,000, while nearly 700 copies of shorter videos called “Earth” and “Mars” sold for $ 7,500 each.
- A unique Nyan Cat collectible sold for approximately $ 580,000.
- Taco Bell has sold NFTs for some reason.
Those are just a few examples. There are many, many more.
But can no one copy an NFT?
You may be scratching your head wondering what the problem is. After all, can’t anyone take a screenshot of Jack Dorsey’s first tweet – or just read it on Twitter? Can’t anyone watch those NBA clips online or download copies of Grimes’ videos with a quick right-click on a webpage?
Well, of course! Someone can also take a high-resolution photo of it Mona LisaIn fact, you can Mona Lisa for free in your web browser, despite the fact that the Mona Lisa is reportedly estimated at nearly a billion dollars.
What you are really paying for is a digital “certificate of authenticity” that says you own the “original” copy. The blockchain, a public ledger that records who owns what, ensures that people cannot simply forge this certificate of authenticity.
If you own that very first copy of the very first Jack Dorsey tweet ever, the blockchain says you do. If you sell it to someone else in the future, that person will own it. “You know, I have the original copy of the first Jack Dorsey tweet,” they say at cocktail parties.
How can something digital be a ‘collector’s item’?
Of course, it’s a little hard to understand how a copy of a Jack Dorsey tweet is worth $ 2.5 million. How is that a ‘collector’s item’ and how is it worth so much money?
Well, we live in a world where Charizard cards from the Pokémon trading card game can sell for over $ 350,000. A copy of the Black Lotus card from Magic: The Gathering—Signed by the original artist – once sold for $ 511,100.
But just as NFT’s are bits of data on a blockchain, those trading cards are just ink on a piece of paper.
Like that signed copy of the Black Lotus card, that Jack Dorsey tweet is essentially a copy of the Jack Dorsey tweet signed by Jack Dorsey. It is a digital copy instead of a paper copy.
But how can digital collectibles have value?
Everything is worth what someone is willing to pay for it.
That Jack Dorsey tweet is worth $ 2.5 million because someone is willing to donate so much money for it. That person might be a huge fan of Twitter and Jack Dorsey, or they bet that NFTs will increase in value and people will be willing to spend even more money in the future to buy that unique signed tweet. .
However, that collector’s item is one of a kind. Even if Jack Dorsey sells a thousand extra copies of his tweet, the first person will always have that original, very first copy of the tweet. They can sell it and whoever buys it is recognized as the owner of the original.