What is an NFT (Non-Fungible Token)?

Beginner
March 24, 2023
Read time:
4m

The concept of ownership is as old as time, but in recent years, technology has redefined what it means to own physical and digital assets. The emergence of NFTs, or Non-Fungible Tokens, has opened up new possibilities for people to exchange value and generate wealth.

NFT (Non-Fungible Token) is simply a unique digital asset tokenized via a blockchain network.

Why is it considered non-fungible?

The fungibility of assets illustrates the idea that you can exchange your asset for an equivalent of the same kind with no loss. For example, if you exchange a $1 bill for another one, their values remain the same. That is because traditional currencies and cryptocurrencies are considered fungible.

Whereas all NFTs can be valued differently, based on their unique attributes and market demand. Scarcity drives prices, so many NFTs reach record prices because of their rarity.


Types of NFTs

You can turn many asset classes into NFTs, as real-life and digital items can be easily tokenized.

Here are the most typical examples of NFTs:

  • Digital art: illustrations, GIFs, memes, and photos can all be sold as NFTs.
  • Gaming items and collectibles: players can purchase skins, weapons, rare characters, or vehicles and trade them with other players.
  • Sports collectibles: trading cards, virtual stadium seats, exclusive content, and sports highlights are popular NFTs.
  • Virtual Real Estate: virtual plots of land and buildings in digital worlds.
  • Event tickets: counterfeit tickets plague the entertainment industry, and NFTs can help event organizers ensure each ticket is unique and protected against fraud.

How do NFTs work?

A Non-Fungible Token is created when a unique data set is encoded onto a blockchain, for example, Ethereum. The said data includes information such as the name and description of the asset and its entire ownership history.


Since everything is recorded on the blockchain, selling and trading NFTs is transparent and makes it easy to verify ownership. NFTs are stored in digital wallets and purchased, traded, and sold on different marketplaces, such as OpenSea, Rarible and Blur.io.


NFT transactions are often executed with the help of smart contracts, which use code to enforce the contract terms and complete transactions automatically when the conditions are met. In this way, smart contracts ensure transparency and efficiency of NFT trading.

Summary

NFTs redefine asset ownership and allow the tokenization of both digital and physical items. Since they are created on a blockchain and stored in digital wallets, they can be easily traded, sold, and bought transparently and efficiently.

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