Introduction to Non-Fungible Tokens (NFTs)

What is an NFT?

Non-Fungible tokens (or “NFTs”) are digital assets that represent real-world objects like music, art, and video game items. In today’s world, you will see most NFTs taking the form of digital art and collectibles of various kinds (i.e. NBA TopShot and Crypto Kitties). However, there’s a common misconception that digital art equals NFTs. This is untrue. More broadly, NFTs are unique, cannot be replicated, and are stored in something called the Blockchain, which is a large storage network that is publicly accessible and controlled by things called smart contracts. Naturally, these features allow them to be used for things, such as:

Art work (Versus Art)
Collectibles (NBA TopShot and Crypto Kitties)
Music (Royal)
Video game assets (Axie Infinity)
Proof-Of-Attendance & Event Tickets (FLOAT)

NFTs stored in the Flow Blockchain

Crypto Kitties

Flunks

FLOAT

Ballerz

NFTs stored in the Ethereum Blockchain

Bored Ape Yacht Club

Royal.io Music NFT

Poap NFT

Sandbox Digital Land

Diagram 1.1. List of popular NFTs

Fungible vs. Non-Fungible

To further understand the “uniqueness” attribute of an NFT, we should learn what Fungible Tokens are. Fungible Tokens are assets that can be replaced by others of the same kind. For example, if I asked you to give me a $1 bill in exchange for one of my $1 bills, you wouldn’t care, because they represent the same thing. Most often, Fungible Tokens take the form of cryptocurrency, a digital currency that lives on the Blockchain (i.e ETH and FLOW).

Fungible Items

They can be exchanged like for like. They have the same value.

Money

Gold

Bitcoin

Non-Fungible Tokens

They cannot be exchanged like for like. They have unique value.

Car

Artwork

NFT

Diagram 1.2. Difference between Fungible and non-Fungible items or tokens

Example

When you go to visit the Mona Lisa in Paris, have you ever wondered why the painting is so special? It’s because it was painted by Leonardo da Vinci himself.

If you tried to duplicate the Mona Lisa and sell it, it would sell for a lot less than the original. The former has history and was painted by Leonardo da Vinci, while the other one has none of those attributes. That is why art or digital collectibles are “non-fungible”; the value of the “same” art pieces significantly varies because they are intrinsically different (i.e. different artists, history varies).