Non-fungible tokens or NFTs have boomed in popularity in recent months. Brands such as Nike, Gucci, and Adidas have jumped on the hype and released their own NFT collections. Nike even acquired RTFKT, a virtual sneaker company, late last year.
But what even are NFTs and why are people paying millions of dollars for these .jpegs? Here's a quick rundown:
Fungible vs Non-fungible
Fungible assets are interchangeable. These assets can be exchanged or substituted and will hold the same value.
Examples:
PHP 100 bill = 2 Php 50 bills
1 BTC = 1 BTC
Non-fungible assets, on the other hand, are not interchangeable. A non-fungible asset has attributes that make it unique. These cannot be substituted or exchanged for another item even for one with similar characteristics.
Example:
Paintings. The Mona Lisa is not interchangeable with The Last Supper, even if both are painted by Da Vinci
What is a token?
In crypto terms, a token is a digital certificate that is stored on a public ledger (popularly known as the blockchain). It's a form of representation of an asset that can be stored, sold, or traded.
Read: What is a Blockchain?
What are NFTs?
A non-fungible token or NFT is a unique token of a digital asset whose public proof of ownership is tracked using a blockchain. The blockchain records all transactions made or will be made since the digital asset was put on sale.
NFTs provide a way to verify and authenticate the owner of a digital asset. While anyone can take a screenshot of an NFT, only the buyer can prove ownership.
Ownership of an NFT provides certain rights to the buyer, including members-only Discord channels, exclusive merchandise, and even access to real-life events. The buyer also has the right to put up the NFT for sale on marketplaces such as Opensea and Rarible.
What are the different types of NFTs?
NFT art and collectibles are the most common forms of NFTs.
NFT Art
1/1 art created by artists who tokenize their artwork. Artists can also receive revenue from secondary sales. For 1/1 NFTs, there's only one token issued for a unique asset.
Example: The digital art piece called Everydays - The First 5000 Days by the Artist Beeple. This is a 1/1 art that was sold for $69.3 million on auction.
NFT collectibles
Digital assets whose value is dependent on their scarcity, rarity, and utility. It's also about community because owning a collectible usually provides access to exclusive perks and clubs. These collections are generated algorithmically through a smart contract so that each NFT would have unique traits.
Example: The Bored Ape Yacht Club is a collection of 10,000 unique apes with a combination of 170 algorithmically generated traits. Some apes are considered more valuable or rare due to specific traits they may have, which also increases their value.
How are NFTs created?
Typically, NFTs are created on the Ethereum blockchain. However, NFTs can also be created based on other blockchains such as Solana or Polygon.
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Since an NFT is different from cryptocurrencies, it requires its own Ethereum smart contract standard called ERC-721. This standard for NFT creates a type of token that is unique and can have different values from other tokens even using the same Smart Contract. Reasons for this may vary ranging from its age, rarity, or even history -- much like real-world art.
Disclaimer: The information and publications in this article are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation offered or endorsed by Coins.
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