The idea of non-fungible tokens (NFTs) is not new and has been around for quite some time, but it only grew in popularity as cryptocurrencies became more mainstream. NFTs and cryptocurrencies both work on an underlying tech—blockchain, and other than what they represent, there are important distinctions between them. Here’s a short explainer on what an NFT is.
What is an NFT?
An NFT is a digital token that uniquely represents an object (physical or otherwise) on the blockchain. NFTs can represent a variety of things: physical objects like artworks, properties, trophies, digital content, or even intangible concepts like intellectual property.
Non-fungible tokens, in contrast to cryptocurrencies, are non-fungible. Unlike in other money markets where one dollar for example, can be exchanged for another with no disproportion, no two NFTs have equal value. It might be helpful to think of NFTs like a birth certificate for example—it is unique and one of a kind, it's proof that it's you, and Ii cannot be replaced with anything else. The same way you cannot exchange your birth certificate with another person’s, NFTs carry unique values that can not be exchanged.
How are NFTs valued?
Having understood what NFTs are, you might ask why would anyone pay $5000 for a piece of art, especially when they can just download it in one click. Yes, they can have it, but they don’t own it. NFTs provide digital provenance, all verifiable on the blockchain. So you might have downloaded one, but you do not own it, everyone can see the owner.
That said, like any other financial asset, value is often perceived. The value of an NFT is based on the value that buyers give it. The fiat you have in your wallet has value because everyone agrees it does, otherwise it would just be a piece of paper. If the NFT is well received by the audience it is being sold to, the value will go up.
For instance, if you own an Aston Martin that once was owned by James Bond, you have something valuable because everyone knows 007, but in the actual sense, you can get the same model anywhere else. That is why CryptoPunks and NBA Top Shot have this immense value, and to be realistic, we all have soft spots for a few things that might seem odd to others.
Are NFTs here to stay?
Short answer: yes. Outrageous evaluations will settle down, but these unique digital assets are not going anywhere. NFTs are not limited to digital art; they have several use cases such as gaming, collectibles, virtual worlds and metaverse, music and a gazillion other utilities that we probably don’t even know yet. You can get on the train early and start creating your NFTs today.