An NFT, which stands for Non-fungible token, is a digital asset that lives in the digital space. Before we continue with NFT, it is good to know what a fungible token is, so we can see how it differs from non-fungible tokens. One key difference between a fungible token and a non-fungible one is that a fungible token is divisible and swappable, giving the same value, unlike the non-fungible one, which is non-swappable. Using the dollar as an example, we can exchange five pieces of $10 note for a single $50 and still have the same value.
The five $10 is equivalent to $50 every time because it is fungible, meaning that it is divisible and swappable with one another. Also, a dollar note anywhere in the world is the same, and it has the same value even though the serial number on the note might differ. However, a non-fungible token doesn’t work the same way as a fungible.
A non-fungible token is a unique token that no one can duplicate or swap for another. It could be anything ranging from paintings, artwork, designs, memes, music, and even a tweet. Yes, a tweet. Although anyone can save an image, for instance, and share it around, they do not own the original photo but just a mere JPEG. Also, the value of the original image is different from the ordinary JPEG.
What makes NFT different from fungible tokens is that it is unique, and a unique item would have more value than a non-unique one. Hence the value of an NFT is dependent on its uniqueness and rarity.
How Does NFT Work?
NFTs, just like cryptocurrencies, are created and stored on the blockchain. Because NFTs are on the blockchain, anyone can review them and verify the owner of the NFT. Therefore, NFTs serve as certificates of authenticity, and proof of ownership, which can never be altered, stolen or duplicated. Hence, NFTs are unique.
For instance, If you buy an NFT, the ownership of that NFT will be transferred to you. So the authenticity of the NFT purchase is on the blockchain for everyone to see.
How does NFT get its Value?
The question of the value an NFT has is found in its uniqueness and rarity. There are thousands of NFT, but the value of each differs based on how rare the NFTs are. There have been examples of NFTs that have sold for millions of dollars, and below are some of them.
The NFT for the first tweet of Jack Dorsey sold for $2.9 million
- Everyday – the first 5000 days artworks by Beeple was sold for $69.3 million in February 2021
- The Nyan Cat GIF sold for $561,000
- A crypto punk NFT was sold for $1.8 million
- The Charlie Bit Me video was sold for 5000,000 pounds
Advantages of NFTs
- NFTs introduces us into a new era where creators or artist can have ownership over their digital assets.
- They are non-destructible and cannot be tampered with because they are all built on the blockchain. Hence NFTs are immutable.
- They are unique and rare
Disadvantages of NFTs
- NFTs can be copied and shared with a lot of people because the owner only has the asset but not the control.
- NFTs selling on exchanges can be stolen, though no one can steal them from the blockchain.
- The market for NFTs is speculative – meaning that no one is sure if NFT is here to stay or just a bubble.
You now know what an NFT is and how it works. Though NFTs have existed for a while, it is just becoming more popular due to its news. It is difficult to conclude that NFT will be with us in the future, but while it is here, it has made a great impression on our minds, and it might just turn out to be the next big thing soon.
Okereke has a passion for researching blockchain and cryptocurrency. He enjoys creating long form educational content to inform others on the opportunities in this space.