Olivier Acuña, Journalist, Author and PR Manager for Electroneum explains the basics in this 2 part series
NFTs are digital collectibles that are minted on the blockchain. They’ve been around since 2014 but began gaining significant popularity last year and in 2021, they’ve been referred to as the fastest-growing asset.
Non-fungible tokens (NFTs), as the name states, are assets that are not readily interchangeable. In economics, fungible assets are exchangeable with each other. That means that with money, for instance, you can change a £10 bill (British currency) for two £5 notes. They have the same value.
Let’s explain it from a technological perspective. NFTs exist on the blockchain, just like cryptocurrencies. However, unlike crypto, NFTs are not interchangeable. What does this mean? Okay, let’s take bitcoin. You can change one BTC for another because they are of equal value. The same goes for any other crypto.
However, with NFTs, that’s not possible. NFTs have value but are not interchangeable unless of course, you find two that have the exact same price and the owners are willing to swap them amongst themselves. Generally, however, they can be sold but not swapped because they have unique properties. Non-fungible assets could come in the form of a house, a vehicle, a painting, such as a Rembrandt or a Picasso.
As with paintings and properties, NFTs are one-of-a-kind. Sure, there are photos, postcards, and posters of many famous paintings, but there will only ever be one original painting.
So, as with artwork and properties and so on, NFTs are also one of a kind, although the difference is they have no tangible form of their own. However, NFTs can be seen as certificates of ownership for virtual or physical assets.
The original NFT creator may mint several duplicates of a single NFT on the blockchain, but each one of those will have a unique identifier, very similar to how lithographs work in the physical art world which is numbered from one to how many ever they print.
Bridging the physical with the virtual
Let’s recap: Traditional works of art are valuable because they are unique, while digital files can easily and endlessly be duplicated. Of course, as we have previously said, so can artwork in the form of photos, postcards, posters, and so on.
Artwork can and is being tokenised, but so can properties and other collectibles. What that means is that practically anybody can invest in tokenised artwork or properties with a minimal investment.
Real estate developers or administrators tokenise property to gain access to additional amounts of capital by fractionalising a property on the blockchain. Do you want a perfect example of this: Bahnhofstrasse 52 in Zurich is a building in of the most upmarket shopping streets in the world.
Zug-based real estate investment firm BrickMark tokenised the building on the blockchain, which means anybody can buy a slice of that property worth about $130 million. Last year, a corporate-led by Blockimmo also converted a Swiss building into digital shares.
How about tokenised artwork? In September 2015, Andy Warhol’s $5.6 million (approx.) painting entitled “14 Small Electric Chairs” was tokenised on the Ethereum blockchain, enabling buyers to purchase portions or fractions of the artwork using ETH, BTC, or Maecenas.
But how do NFTs work?
Well, exactly like cryptocurrency in that they are on the blockchain, which means a record of who owns them is stored on a shared ledger network, which could be Cardano, Ethereum, and Wax, to mention a few.
As with cryptocurrency records, NFTs’ cannot be forged either because the ledger is maintained and verified by thousands of computers or nodes worldwide. Smart contracts can also be built into NFTs, enabling artists, for example, a share of any future sale of the token.
Other explanations of what NFTs are
“An NFT is a digital asset that represents a real-world object like, for example, the Charlie Bit My Finger video. NFTs are bought and sold online, frequently with cryptocurrency, and are generally encoded with the same underlying software as many cryptocurrencies,” says Forbes.
“Because an NFT allows the buyer to own the original item. Not only that, it contains built-in authentication, which serves as proof of ownership. Collectors value those ‘digital bragging rights’ almost more than the item itself,” adds the mainstream media outlet.
Forbes goes on to explain that NFTs are mainly created using the same type of programming as crypto, in other words, just like Bitcoin or Ethereum. However, Forbes says, “each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). Charlie Bit My Finger, for example, is not equal to EVERYDAYS simply because they’re both NFTs.”
The Binance Academy explains that “a non-fungible token (NFT) is a type of cryptographic token representing a unique asset. NFTs are tokenised versions of digital or real-world assets. They function as verifiable proofs of authenticity and ownership within a blockchain network.” It adds that NFTs introduce scarcity to the digital world.
They also explain that “NFTs can be used by decentralized applications (DApps) to allow for the creation and ownership of unique digital items and collectibles. NFTs have the potential to be one of the key components of a new blockchain-powered digital economy. They could be used in many different fields, such as video games, digital identity, licensing, certificates, or fine art.”
Next time tune in to find out the most popular uses for NFTs