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What Is An NFT? What Are Non-Fungible Tokens?

Posted on May 4th, 2021 by EM Search Consulting

Non-fungible tokens, or NFTs, are unique, digital goods. In contrast, fungible assets, like cash, are assets that are interchangeable. Every $20 bill of the same currency is virtually identical. It doesn’t matter which $20 bill you have, because they all hold the same value.

Non-fungible assets, like an original piece of art, are one-of-a-kind. There may be similar items, like a print of the artwork, but its value is not the same as the original. With physical pieces of art, the difference between the original and a print may be obvious. However, it’s possible to create perfect copies of digital information, making it difficult to identify the original.

That’s where tokens come in. For NFTs, a token represents a unique digital asset and records information about its ownership. These tokens live on a digital ledger known as a blockchain. The ledger is immutable, meaning its data cannot be modified after being entered. As a result, it can serve as a certificate of authenticity for digital art and other virtual assets.

Tokens are a form of cryptocurrency that are built on an existing blockchain. Most NFTs are built on the Ethereum blockchain because of how it is to use the platform. Plus, the Ethereum blockchain has proven secure with more than 350 million transactions to date. Thus, NFTs created on the platform are safe from outside interference.

Prior to the invention of NFTs, you could only sell copies of digital assets like images or video clips. You couldn’t really sell an original piece of digital art because there was no good way to verify that its authenticity. Purchasing a digital file was analogous to buying a print of a piece of artwork rather than the art itself. The print portrays the same information as the original, but it holds no value beyond this information.

Non-Fungible Tokens

You can buy a print of Leonardo da Vinci’s Salvator Mundi for less than a hundred dollars. Or you can download and use a digital copy of it for free. But the painting itself sold for nearly half a billion dollars in 2019. Buying an NFT is like buying the actual painting, but for digital goods.

Although every NFT is unique, they aren’t used only for original works. You could sell a series of the same piece of artwork so long as each piece from the next. Buying one of these NFTs would be like buying a limited print, perhaps number 59 of 100. Like limited prints, they would likely be worth less than the original but more than a generic print of the same piece.

Million Dollar NFTs And Other Use Cases

NFTs made headlines around the world last month when digital artist Beeple sold a piece of digital artwork for more than $69 million. The buyer received a non-fungible token that certifies their ownership of the original JPG. But anyone can download a copy of the JPG for free.

Since then, Twitter founder Jack Dorsey sold an NFT version of the first tweet for $2.9 Million dollars. Although this NFT could be considered a piece of art, it demonstrates that any digital information can be made into an NFT. Thus far, NFTs have mostly been used for art and digital collectibles, like the NBA’s Top Shot trading cards. But they could soon be used for much wider applications.

NFTs could be used to represent items in the real world. They could serve as a deed to a piece of real estate or the title of a car. The immutable nature of blockchain technology allows it to create a permanent record of ownership for any asset, physical or digital. We simply need to create a legal framework to recognize NFTs for these purposes.

The possibilities are virtually limitless. From home sales to concert tickets, NFTs could soon make their way into our daily lives in ways we can’t even imagine yet. Although early forms of NFTs date back to the early 2010s, the technology is just starting to gain traction. It will be exciting to see how NFTs and cryptocurrencies find their place in our increasingly digital world.