A non-fungible token, shortened to NFT, is a unique digital asset. It stands against fungible digital assets like Bitcoin and Ethereum in this regard. Bitcoin is a fungible asset, meaning its different units aren’t differentiated. One bitcoin is always one bitcoin.
Examples of fungible assets flourish around us. For instance, fiat money and national currencies are also fungible. You can never say a 1-dollar bill is different from another 1-dollar bill. For this reason, you can easily exchange them with each other. Gold is another example of a fungible asset. One gram of gold in the US is as valuable as 1 gram of gold in the UK by nature.
However, if you look more closely, you will find out that not all assets are like this. Is a famous painting like Mona Lisa fungible? Certainly not. Its value comes from its non-fungibility. The same difference exists in the world of crypto.
To put it precisely, a non-fungible token or NFT is a scarce, unique digital token recorded and transferred on the blockchain. Computer game items, digital collectibles, digital art pieces, tickets for different events, domains, and other similar assets are categorized as non-fungible tokens.
How is a non-fungible token created?
Non-fungible tokens are smart contracts on smart-contract-supporting blockchains like Ethereum and Solana. Ethereum, the largest blockchain hosting smart contracts, has two standards for creating NFTs: ERC-721 and ERC-1155.
ERC-721 was the first standard created for NFTs. In this standard, the ownership of each token is determined for each address, and tokens can be easily transferred. The code of ERC-721 tokens was written in the Solidity programming language. The Enjin Coin team created ERC-1155. This standard brought about the creation of semi-fungible tokens.
How is a non-fungible token bought or transferred?
Unlike cryptocurrencies bought from cryptocurrency exchanges, NFTs are purchased from NFT marketplaces. Several NFT marketplaces, including OpenSea, Rarible, and Nifty Gateway, have high trading volumes. Transferring a non-fungible token is as easy as transferring cryptocurrencies. The only thing you need is the recipient’s address.
Features of NFTs
Here, we explained NFTs and referred to some of their main features. However, NFTs have three outstanding features that need more elaboration. We will go through these three features in the following parts.
Being scarce
Scarcity is an attractive feature of non-fungible tokens. Developers are free to mint as many NFTs as they wish, but most prefer to preserve their products’ scarcity. Some non-fungible tokens are so scarce that they are only one of a type.
Being unique
As their name suggests, non-fungible tokens are unique. Each NFT has a unique feature that is not found in another NFT.
Being indivisible
Bitcoin and most other cryptocurrencies are divisible. You don’t have to buy a complete unit of bitcoin. For example, you can buy 0.1 bitcoin, 0.001 bitcoin, or 0.35 bitcoin. In contrast, NFTs aren’t divisible and are transferred as a complete unit.
Primary use cases of NFTs
Non-fungible tokens have essential roles in the crypto world. They have revolutionized some industries, like the gaming industry. Some of the prominent use cases of NFTs include:
Digital art
NFTs let artists convert their traditional pieces of art into digital art in a few minutes. This facility has impacted the issue of intellectual property to a great extent. The artist of a digital piece of art created in the form of NFT can easily prove their ownership quickly. This is because the history is recorded on the blockchain and can be checked by anyone.
Collectibles
NFTs are appropriate for those who are interested in collectibles. These collectibles may or may not have a monetary value. Imagine you are a fan of a football player or a football team. Using NFTs, you can own the images of special moments of that team or player. You can then sell your NFTs whenever you decide. The price at which you can sell them depends on the demand for them.
Gaming
In traditional games, users had no real income or share of the game’s profit. Blockchain, with the help of non-fungible tokens, solved this problem. In the new blockchain-based games known as play-to-earn (P2E) games, users are rewarded with NFTs. They are then allowed to take their NFTs to NFT marketplaces and sell them for real money.
Conclusion
In this article, we tried to explain the concept of non-fungible tokens or NFTs in the simplest terms. You know that NFTs are scarce, unique, indivisible digital tokens differentiated from other tokens by their unique characteristics. A non-fungible token can be worth millions of dollars, or it can be worth a few cents. The value of an NFT is directly determined by the demand that exists for it. And no one can predict how this demand works and where it comes from. It is based on the hype that surrounds the crypto world. For example, the NFTs of bored apes became very popular in 2022 and sold for millions and thousands of dollars. However, as we explained throughout the article, the value of NFTs is not just limited to their monetary value. They have many more use cases and are generally essential achievements of cryptocurrencies.
What is a non-fungible token (NFT)?
n NFT is a unique digital asset that represents ownership of a specific item or piece of content, such as artwork or music.
How are NFTs different from other cryptocurrencies?
Unlike most cryptocurrencies, which are fungible and interchangeable, each NFT is unique and represents ownership of a specific asset.
How do NFTs work?
NFTs use blockchain technology to verify ownership and track the transaction history of a specific digital asset. Each NFT has a unique digital signature that can be used to prove ownership.
What types of assets can be represented as NFTs?
Almost any digital asset can be represented as an NFT, including artwork, music, videos, memes, and even tweets.
How are NFTs bought and sold?
NFTs can be bought and sold on various online marketplaces, such as OpenSea and Nifty Gateway, using cryptocurrencies such as Ethereum.
Can NFTs be replicated or copied?
While the digital content represented by an NFT can be copied, the NFT itself is unique and cannot be replicated or duplicated.
Are NFTs a good investment?
Like any investment, the value of NFTs can be highly volatile and depends on market demand. While some NFTs have sold for millions of dollars, others may not hold their value over time.
How can I create my own NFT?
There are various online platforms, such as Rarible and Mintable, that allow users to create and mint their own NFTs using their own digital content.
