Still confused about NFTs?

NFTs: You’ve likely heard of non-fungible tokens but don’t really understand what they are — or why everyone is suddenly obsessed with them. In this blog, we’re going to discuss:

• What NFTs are, in the simplest terms.
• The benefits of NFTs.
• Examples of NFTs.
• How non-fungible tokens are different from cryptocurrency.

Keep scrolling for more!

What is a Non-Fungible Token (NFT)?

A non-fungible token is a type of digital asset that represents a unique item, such as a piece of art, a collectible, or a virtual world item. In other words, it can represent both tangible and intangible items. NFTs are stored on a blockchain, like other cryptocurrencies, and can be bought, sold, or traded. They’ve been around for several years now but have more recently gained popularity because it’s an easier way to buy and sell digital assets.

The important part here is the word “fungible.” Merriam-Webster defines this as, “being something (such as money or a commodity) of such a nature that one part or quantity may be replaced by another equal part or quantity in paying a debt or settling an account.” As you’re about to learn, NFTs are literally irreplaceable.

Sounds cool, right? It is! But what’s with all the hype? Why is the concept of non-fungible tokens stealing so many headlines?

What are the Benefits of NFTs?

People are scrambling to hop on the NFT bandwagon for a reason. Non-fungible tokens offer a number of advantages.

1. NFTs are Unique and Cannot Be Replicated

Most NFTs are literally one of a kind, or — at the very least — there’s a very limited supply. Each one contains its own unique digital signature. This signature makes it literally impossible to exchange two NFTs that are equal in value.

This makes them ideal for digital collectibles and other one-of-a-kind items. It also means that typically, NFTs are in high demand and thus, people are willing to pay a lot for them.

This is unique because digital assets are usually available in limited quantities.

2. NFTs Can Be Stored Securely on a Blockchain

The same software that encodes and protects cryptocurrencies is also used for NFTs. Their ownership can only be verified using blockchain technology. Few technologies are as secure, stable, and anonymous as blockchain.

3. Non-Fungible Tokens Can Be Bought, Sold, and Traded Like Any Other Assets

When you buy an NFT, you’re purchasing the private keys to that NFT. This means you can buy, sell, or trade that right to another person. Similarly, the value of NFTs can appreciate or depreciate over time, meaning that there’s an opportunity to buy an NFT and then sell it for a profit.

In this sense, NFTs can be viewed as assets.

4. NFTs Offer a New Way to Monetize Digital Content

This applies to art, music, and videos. Non-fungible tokens have opened up a world of opportunities for content creators and artists. In a world where content is easily stolen and copied, NFTs give artists a way to sell something in a much more exclusive (and protected) way.

5. NFTs Can Be Used to Create New Types of Games and Other Applications

NFTs can be used to represent in-game items, digital art, or other digital assets. They can also be used to create new types of games that are based on the ownership and trading of digital assets.

Another use case for NFTs is in the creation of new types of markets. Non-fungible tokens can be used to represent assets in a market and can be traded on exchanges. This could essentially create new types of markets for digital assets that are not possible with traditional markets.

Furthermore, NFTs can be used to create new types of currencies, which can be utilized in ways that are not possible with traditional currencies.

What’s an Example of an NFT?

Great question! There are countless. But here’s one that’ll probably resonate. Early in 2021, Jack Dorsey, the CEO of Twitter and Square, sold his first-ever tweet as an NFT for more than $2.9 million. The tweet is from 2006 and reads, “just setting up my twttr.” Elon Musk did something similar with a tweet of his own.

If you think that’s pricey, you haven’t heard of Beeple. The artist sold his piece, called “Everydays: The First 5000 Days,” which was a collection of 5,000 pieces of digital artwork he’d made, spanning back to 2007. It sold for $69.3 million. (Fun fact: The buyer, Vignesh Sundaresan, reportedly said he would’ve paid even more to obtain it.)

Are NFTs the Same as Cryptocurrency?

Non-fungible tokens and cryptocurrencies certainly have some things in common. But they’re not the same.

NFTs are digital assets that are stored on a blockchain and can be bought, sold, or traded, like cryptocurrency. Also, both of them rely on blockchain technology to function, and people will often use a cryptocurrency like Bitcoin to purchase NFTs.

However, that’s where most of the overlap ends. Unlike cryptocurrency, NFTs are not interchangeable and each NFT is unique. Plus, the value of cryptocurrencies is economic. It’s another form of money. NFTs are items that you can buy, sell, or trade.

If you ever get confused, just remember the word “fungible,” which means it can be changed or substituted. Cryptocurrencies are fungible. NFTs are, by definition (and name), not.

Buying, selling, and trading NFTs have become a fun hobby or experiment for some, and a dedicated job for others. And in a time when the way we shop and spend is drastically changing, this technology probably isn’t going to go away.

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What is a Non-Fungible Token? was originally published in BalletCrypto on Medium, where people are continuing the conversation by highlighting and responding to this story.