NFTs, explained.

Nothing beats an eruption of blockchain news to leave you wondering, “Um… what’s going on here?” That’s how I felt when I read about Grimes being paid millions of dollars for NFTs or Nyan Cat being peddled as one. And just when we thought we had a handle on what was going on, Twitter’s creator placed an autographed tweet up for sale as an NFT. Even months after we initially published this lesson, we’re still reading news about individuals spending house money for rock clip art — and my friends still has no idea what an NFT is.

What is a Non-Fungible Token? 

A non-fungible token is a type of digital representation on the Ethereum blockchain that represents an asset with digital scarcity. They are also known as one-of-a-kind tokens, which means they cannot be replicated or shared. The industry uses this idea to allow for additional customization of their tokens. Some users can choose to trade their coins for special designs or custom engravings, while others can use them as a “credit” system, similar to how other types of cryptocurrency’s work. 

If you walk into a store and buy some fruit, the fruit is fungible. Fungible means identical or replaceable. The type of the fruit is irrelevant, as all instances of the same kind of fruit have exactly the same value. The weight of an apple from type A, for example, is exactly the same as an apple from any other tree in that specific harvest season. Because of this you cannot tell them apart with certainty and therefore they are considered to be fungible. 

A paper money note on the other hand is not fungible because it has a serial number on it (e.g., “12345”). The serial number makes it unique and therefore each note is different. The same way that a non-fungible token is unique and cannot be replicated or traded for another token of the same type. 

Let’s use an example from the game CryptoKitties to understand how this works. In CryptoKitties you can buy, sell and breed digital cats. There are certain characteristics about these cats that make them unique, such as color patterns, eye color and fur length. These characteristics are used to determine the value of a certain cat. 

One of the most popular CryptoKitty, named Fluffy: 

There is a total supply of 1,393,125 CryptoKitties and each one costs almost $40 in ETH. This puts the value of the entire CryptoKitty market at about $4.6 million (at the time this article was written) but it depends on how many cats people buy. Adding to the popularity of these digital toys is that people can combine their own cats in different ways to create new ones – like a combination of Fluffy and someone else’s Kitty (for example). 

How Does A Non Fungible Token Work? 

One of the most interesting things about non fungible tokens is that they can be used in a variety of different ways. Their unique codes mean that they can’t be replicated, so these coins can have all kinds of unique features. This means that while certain types of currencies are good for trading and others are best for storing value, non-fungible tokens have uses in multiple sectors and industries. Each user has the option of customizing their coins or using them exactly like any other cryptocurrency on the market. 

Ico and nft tokens are a part of the initial coin offering trend which has become very popular in recent years. Ico’s have become particularly popular in the last few years, and they are a valuable asset to many different types of businesses. Users can choose to invest their money in the initial coin offering but they also get an added benefit. An icon investment doesn’t just give investors the chance to make a profit, it also gives them a non-fungible token that they can use for all kinds of different purposes. Instead of investing money in something and only receiving back more money, icon holders receive both monetary benefits and tokens at the same time. What makes nft tokens even better is that users don’t need to be beholden to only one company or brand in order to use their coins. 

Big company like Meta, for example, is developing plans to let users to manufacture and trade non-fungible tokens as part of a rush of firms attempting to cash in on the digital collectable frenzy.