What is an NFT: Non-Fungible Token?
What is an NFT?
An NFT or Non-Fungible Token is a unique, Ethereum based (a Cryptocurrency) digital asset that is non-interchangeable, meaning it can’t be replaced with an alternative.
Built on blockchain technology, it is a token that represents ownership of a specific asset. This ownership is secured using the Ethereum blockchain, meaning there can always only be one owner recorded on the ledger, and this ownership cannot be modified or altered in any way. For this reason, NFTs are considered highly secure which has led to their popularity.
While commonly associated with digital or online art, they have also been used to represent ownership of physical assets such as land, cars and houses through deeds.
What does Fungible mean?
Fungibility or Fungible is an economics term where the individual units of a commodity or good is interchangeable, with each part being indistinguishable from one another. Essentially, the value of one unit is equal to another of the same quality, at a given moment in time. Examples of Fungible goods are;
- Gold: A pure gold bar can be broken up into gold coins, gold ingots or other forms and these forms will total up to be equivalent in value to the original gold bar.
- Currency: A $10 dollar bill can be made up of quarters and smaller bills, where each unit has it’s own value and can be interchanged with one another.
- Shares: Each share has a fixed value and they can be exchanged, transferred or moved without one share being seen as different to the other.
Non-fungible items are not defined by their value but rather their unique nature.
What are the properties of an NFT?
- Each Non-Fungible Token is unique and has a unique identifier linked directly to a specific Ethereum address.
- The owner of the token is recorded on the blockchain ledger, meaning they can be easily verified.
- Each token can be bought and sold on any Ethereum-based NFT marketplace.
- Each token cannot be interchanged with another as the value is not 1:1
Why are NFTs becoming popular?
An NFT has certain unique properties that make it appealing;
- No two NFTs are the same, each one is digitally unique.
- Ownership rights remain with their creator and cannot be disputed since the record cannot be hacked, changed or modified without permission.
- NFT creators are not tied to a physical marketplace, and their work can be sold worldwide.
- It can act as a transactional or tradeable commodity; one NFT for another, or used to buy physical or digital items.
- There is no infrastructure (online e-commerce store or brick and mortar) required to sell an NFT, allowing creators without a web presence to still be able to sell their work online.
- Some Non-fungible tokens can be set to automatically pay out royalties when used. The automated nature of the process means creators can be reassured that they are paid what is due to them.
- The scarcity of the token is determined by the creator – they can determine the number of replicas that can be made/be active at any given time. The lower the number of replicas available, the scarcer the token, allowing creators to demand higher prices.
- For digital content creators, Non-Fungible tokens guarantee that their work cannot be stolen, copied or duplicated without consent, a common and serious issue in online content creation.
Where can you buy NFTs?
The first step is to set up a digital wallet for Cryptocurrencies and Non-Fungible tokens to store and manage these assets. Then purchase some crypto, which can be done on platforms such as eToro, Coinbase or Binance, and transfer the currency to the digital wallet. It’s important to remember to check the transaction fees before purchasing either a Non-Fungible Token or Cryptocurrency as these differ by marketplace.
Once funded, look at NFT Marketplaces such as Rarible, Opensea.io or others to find and purchase one.
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