Whilst everyone seems to have heard about ‘NFTs’, they often do not fully understand what they actually are. The term ‘NFT’ refers to a Non-Fungible Token. Fungible means that something is interchangeable or replaceable by another identical item. For example, a pack of Kellogg’s Coco Pops is replaceable by another identical pack of Kellogg’s Coco Pops, so it is fungible. Non-Fungible means that something is not identical to anything else, instead, it is unique, like a pet cat or dog.
Token refers to an electronic data unit that is based on a digital blockchain, which is a shared database or ledger. So, an NFT is a token that is based on a blockchain that is completely unique that is attached to a digital media file. An NFT represents proof of legal ownership of a unique original version of a digital file, it is a digital asset, not just information that has been digitised. Each NFT contains information within its software code that describes the properties of that token that make it completely different to any other token.
CryptoPunks are one example of a collection of 10,000 uniquely generated characters represented as NFTs on the ‘Ethereum’ blockchain. Bored Ape Yacht Club are a second example of a collection of 10,000 uniquely generated characters represented as NFTs on the Ethereum blockchain. PsychoKitties are a third example of a collection of 10,000 uniquely generated characters represented as NFTs on the Ethereum blockchain.
However, the amazing thing about NFTs is that they are not just used to represent digital art and digital art collectibles, they can also be used for a wide range of use cases, such as:
(1) virtual assets, such as property and real estate available in virtual worlds (e.g., Decentraland, Voxels) or the Metaverse which is tokenised into NFTs;
(2) content ownership, which includes ownership of unique digital assets such as rare or limited edition digital albums produced by music artists such as Ariana Grande or Taylor Swift;
(3) gaming, such as items available within software games which represent unique, collectibles, in-game ‘skins’, or trading cards, e.g., Aavegotchi, Axie Infinity;
(4) sports, such as the American ‘NBA Top Shot’, a marketplace where sports fans can buy and sell official digital basketball collectible NFTs which contain unique basketball video clips; and
(5) real-world assets, which covers the tokenisation of physical assets such as property and houses that exist in the real world via unique NFTs.
The technology behind NFTs may be complex. However, this does not mean that children or adults do not understand what NFTs are. I may not understand how the technology inside a Sony PlayStation 5 console works, but I sure know what Play Station games are and how to play them! So, to summarise, an NFT is a unique representation of an item via a digital token on a blockchain. If you legally own an NFT, you are the only person in the world that owns that original item, such as a piece of digital art.