If you’re an avid internet explorer, having a keen interest in all things digital, you must’ve heard of NFT. Non-Fungible Tokens or NFT has become a real rage these days, thanks to the growing popularity of cryptocurrencies. And judging by the marketability of NFTs, it looks like it is here to stay. But I’m sure you’re asking yourself, what are non-fungible tokens (NFTs) and how does it work? If that’s the case, we’re here to clear your doubts.
What is NFT?
NFT or Non-Fungible Tokens refers to unique digital items that are on the blockchains which are essentially digital ledgers. But, before understanding what an NFT is, it’s important to understand what non-fungible means.
Non-fungible, in simple words, means any physical/digital asset that can’t be replaced by any other item. Since non-fungible items are unique and one of a kind, therefore they are irreplaceable. We can easily replace anything that is fungible, like money, jewelry, metals, and even food items. The moment you replace your assets, it becomes fungible.
However, fungibility only applies when you’re comparing multiple things and is highly relative. You can’t compare something that might be similar but still incomparable. The perfect example would be different fruits, vehicles, furniture, or different classes of plane tickets.
All the above examples are roughly fungible. However, they are non-fungible if their value is irreplaceable to the owner. You can easily replace a $20 bill with another identical $20 bill no matter the serial number. However, you can’t replace a rare 1 cent coin with a regular coin.
Non-fungible tokens might be finally getting momentum but it was present since the beginning of the internet. From in-game items and currencies to social media handles, domain names, etc., are all non-fungible digital assets. However, they differ in terms of the interoperability, tradability, and liquidity of the digital asset.
Usually, it’s difficult to have ownership of such digital assets. Since it’s not physical items, to what proportion do we really own them? Sure, you still own them digitally, but the issue arises when you try to buy or sell these digital assets.
This is where blockchains steps in. Blockchain, in simple words, is a digital ledger that contains digital records called “blocks”. It is usually a public, decentralized, distributed ledger that records transactions across several digital platforms. Blockchains have several layers that make ownership and management of digital assets synchronized. HTTP, JPEG, PNG, HTML/CSS are all examples of blockchains.
Similarly, NFTs are also based on blockchains. There are specific token standards created so blockchains can function in the digital marketplace. There are three different NFT blockchains: Ethereum (ERC-721, ERC-1155), Flow, and Tezos. These blockchains are the main standards for representing non-fungible digital assets. It is used for numerous purposes like creating a public, transparent, and permanent ledger system for assembling data on tracking digital use, transactions, sales, and payments. It is especially useful for digital content creators like artists and musicians.
Here is a Saturday Night Live skit that perfectly sums up NFT by SNL’s Pete Davidson and Chris Redd and rapper Jack Harlow.
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