What are NFTs? Non-Fungible Tokens Explained

What is a Non-Fungible Token (NFT)?

NFTs are digital assets that cryptographically represent the ownership of real items like art, music, collectibles and even real estate. They are modern collectibles that can be bought and sold online like any property, mainly using cryptocurrencies, but with no tangible form of their own. NFTs exist on a blockchain, the database that underpins cryptocurrencies.

For a better understanding of what NFTs are, its useful to get familiar with the fungibility concept first.

  • Fungible Assets:are exchangeable assets that can be easily interchanged with one another. Their value is not defined by their uniqueness. For example, Bitcoin and USD are exchangeable for one another, you can exchange 1 BTC for $1 USD, so both are fungible assets.

  • Non-Fungible Assets:are not interchangeable. Each one has its unique properties and worth and is never equal in value or similar to another. For NFTs, for example, the value of each token is defined by its unique properties.

Non-fungible tokens have been around since 2014, but have boomed recently as they are becoming an increasingly popular channel to buy and sell digital artwork, even among celebrities and public figures.

NFTs were developed on theEthereumblockchain, the first to support NFTs. Other blockchains have supported or plan to support NFTs due to their growing popularity. Non-fungible tokens were developed on the ERC-721 standard, which defined the security and metadata of the tokens.

NFTs became popular with the success of theCryotoKittiesProject in 2017. It was an online game to adopt and trade virtual cats with unique identifications on Ethereums blockchain. Each kitty is one-of-a-kind and has a value-priced in ether. Soon after, the game went viral and raised $12.5 million worth of investments. Some kitties were being traded for $100,000 each.

How is NFTs Different from Cryptocurrencies?

Cryptocurrenciesare fungible assets that can be traded or exchanged for another. Units or tokens of a cryptocurrency are equal to one another in value. The fungibility of cryptocurrencies allows for higher credibility when it comes to conducting transactions on the blockchain.

On the other hand, Each NFT has its own digital signature which makes it possible to be exchanged for one another.

Unlike cryptocurrencies, non-fungible tokens lack the interchangeability feature. Each token is unique and irreplaceable, no two NFT tokens are the same. NFTs are one-of-a-kind assets that represent digital proof of ownership securely recorded on ablockchain.

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