What are Non-Fungible Tokens (NFT)?
What Does Non-Fungible Mean?
Fungibility is an term - used in economics - that describes the interchangeability of some items. For example, a packet of Oreos is fungible from any other packet of Oreos. Similarly money is fungible - although each bill will have a unique serial number - ten dollars is ten dollars. However a painting by Picasso is not interchangeable with a different painting by Picasso. They are non-fungible.
And of course a Token is a thing serving as a visible or tangible representation of something.
What are Non-Fungible Tokens?
Non-fungible tokens (NFTs) are unique identification codes that sit on a blockchain. Unlike cryptocurrencies, they cannot be exchanged like money. This differs from fungible tokens are identical to each other and, so can be exchanged like money. Okay maybe we need to explain what a blockchain is ...
What is a blockchain?
A blockchain is a very clever and complicated idea, that would take hours to fully explain. So in a nutshell a blockchain is a list of transactions or events that is independent of any organisation and very hard to hack. It is a very reliable list of things that happened. For example the Bitcoin blockchain contains details of every time someone gives or receives bitcoin. It is called blockchain because it is a chain of blocks (mind-blowing info). Each block contains a number of transactions and is "sealed" so it cannot be tampered with. Blockchains are stored on hundreds or thousands of computers, so if someone were to tinker with one of them it would be useless you'd have to tinker with all the computers all at once.
What more do you need to know about NFTs?
NFTs can be tokens for real-world items like artworks, jewellery and even real estate.
NFTs have the potential for several use cases. For example, they are an ideal vehicle to digitally represent physical assets like real estate and artwork. Because they are based on blockchains, NFTs can also work to remove intermediaries and connect artists with audiences or for identity management. NFTs can remove intermediaries, simplify transactions, and create new markets.
Much of the current market for NFTs is for collectibles, such as digital artwork, sports cards, and other rare items.
In early March 2021, a group of NFTs by digital artist Beeple sold for almost US$70 million.
There is a lot of craziness around the world of NFTs. It is important not to get swept up in the excitement and spend money you cannot afford to lose.
How Can I Buy NFTs?
Many NFTs can only be purchased with the cryptocurrency Ether, so owning some of this is often a vital first step. You can then purchase NFTs via any of the online NFT marketplaces, including OpenSea, Rarible, and SuperRare.
Are NFTs Safe?
Non-fungible tokens, which use blockchain technology just like cryptocurrency, are generally secure. The distributed nature of blockchains makes NFTs difficult to hack. One security risk for NFTs is that you could lose access to your non-fungible token if the platform hosting the NFT blockchain goes bust.