What Are NFT's? Non-Fungible Tokens Explained

NFT’s burst onto the scene in 2021 after some crazy headlines and outrageous price tags. With pictures of apes selling for millions of dollars, and kids in high school making hundreds of thousands overnight. You might be asking yourself what in the world is an NFT?

Non-fungible tokens or NFT’s are one of the crypto industry's fastest-growing segments. In today’s video, we explain what they are, how they work, and if they really are the future. Let’s get right into it!

What are NFT’s? (Non-Fungible Tokens)

Non-fungible tokens are digital assets with unique identifiers stored in smart contracts.

Each NFT is unique due to its information, and as a result, it cannot be directly replaced by another token. Because no two NFT’s are alike, they cannot be swapped like for like. A non-fungible token's unique information, such as a Bored Ape Yacht Club, is stored in its smart contract and immutably recorded on the token's blockchain. NFT’s are a kind of token that is not fungible. Blockchain-based cryptocurrencies such as Bitcoin and Ethereum are coded in a similar manner, but that is where the similarities end.

The terms "fungible money" and "cryptocurrency" refer to the fact that they can both be swapped in the same manner as paper money can be exchanged for another. No matter how much money is in circulation, a $1 is always equal to another $1, and a Bitcoin is always worth another Bitcoin, no matter how much money is in circulation. It makes no difference in terms of money. The fungibility of cryptography makes it feasible to strengthen the security of blockchain transactions by incorporating it into the system.

NFT’s are unique from one another. It is difficult to exchange or compare NFT’s since each one has a unique digital signature, making it impossible to swap or compare them (hence, non-fungible). Simply because they are both non-factors, one NBA Top Shot tape does not mean that they are both NFT’s on a daily basis. Even a single frame of NBA Top Shot tape is not necessarily identical to the next.

Non-fungible tokens are typically not divisible, much like you couldn't send someone part of a concert ticket because it wouldn't be worth anything on its own and wouldn't be redeemable. However, some investors have been experimenting with the concept of fractionalized NFT’s in recent months, although they remain a legal grey area and could be considered securities.

Purpose Of NFT’s

NFT’s include digital material, including art, music, video games, and films. Since they can be exchanged for Ethereum and are encoded using the same software as many other cryptocurrencies, this is the reason for their widespread use and widespread acceptance. Even though they've existed since 2014, NFT’s for purchasing and selling digital artwork are just now becoming popular.

Millions of dollars for something you can just as easily download or snap a photo of is just absurd. In the case of an NFT, the original product is held by the buyer. This is the only way to prove that you are the rightful owner of a thing. "Digital bragging rights" are more valuable to collectors than the actual artwork.

Artists and content creators have a new way to monetize their work thanks to the rise of blockchain and NFT’s. Artists no longer have to depend on galleries or auction houses to sell their work. Because it's a non-functional toy, the artist may resell it to the consumer and retain a larger portion of the sale price. Artists may also be paid a part of the money produced when their work is sold via the inclusion of royalty payments in software. This is a huge perk for painters since they seldom earn any more money after selling their first piece.

How Do NFTs Work?

Fungible tokens include Bitcoin and Ethereum-based ERC-20 tokens. ERC-721 is Ethereum's non-fungible token standard, which is used by projects like Bored Ape Yacht Club and Decentraland.

With non-fungible token tools and support, non-fungible tokens can also be created on other smart-contract-enabled blockchains. Though Ethereum was the first blockchain to support NFT’s, the ecosystem is growing, with blockchains such as Solana, NEO, Tezos, EOS, Flow, Secret Network, and TRON now supporting them.

Non-fungible tokens and their smart contracts allow for the addition of detailed attributes such as the owner's identity, rich metadata, and secure file links. Using non-fungible tokens to prove digital ownership in an increasingly digital world is a significant step forward. They could see blockchain's promise of trustless security being applied to almost any asset's ownership or exchange.

Non-fungible tokens, their protocols, and smart contract technology are still being developed, as is the case with blockchain to date. Developing decentralized applications and platforms for non-fungible token management and creation is still challenging. There's also the issue of establishing a standard. Many developers are working on their own blockchain projects, making blockchain development fragmented. Unified protocols and interoperability may be required for success.

How Are NFTs Used?

Non-fungible tokens can be used to represent digital collectibles such as the Bored Ape Yacht Club, NBA Top Shot, Cryptopunks, and digital assets that need to be distinguished from one another to prove their value or scarcity. Everything from virtual land parcels to artworks to ownership licenses can be represented using them.

NFT marketplaces are where they're bought and sold. While dedicated marketplaces like OpenSea and Rarible have long dominated the field, some of the most well-known cryptocurrency exchanges have recently entered the fray. Binance launched its own NFT marketplace in June 2021, while Coinbase announced its own NFT marketplace plans in October 2021, with over 1.4 million people signing up for the waitlist in the first 48 hours.

The Future Of NFTs

Non-fungible tokens are currently most closely associated with artwork, gaming, and crypto collectibles. The Smurfs, Minecraft, and BBC's Doctor have all been turned into NFT’s. So-rare, a fantasy soccer game, has over 100 football clubs on its platform, and NFT’s have been created for the Smurfs, Minecraft, and the BBC's Doctor Who. Twitter debuted its own NFT collection in June 2021, and it announced plans to verify users' NFT avatars a few months later.

In gaming, non-fungible tokens could be used to represent in-game items like skins, allowing them to be transferred between games or traded with other players.

Copyright and intellectual property rights, ticketing, and the sale and trading of video games, music, and movies are all examples of their potential. In September 2021, the thriller Zero Contact was the first feature-length film to be released as an NFT, followed by Lockdown, a pandemic-themed thriller, a few weeks later. Tom Brady's NFT platform Autograph, which launched music vertical in October, signed The Weeknd as its first signing.

NFT’s are also expected to play a key role in the metaverse, a persistent, shared virtual world where users can interact as 3D avatars. Among the brands that have entered the metaverse are Meta (formerly Facebook), Adidas, Nike, and Samsung, with more expected to follow.

Final Thoughts

So do think NFT’s are just a fad? Do you own any NFT’s? Are they really the future?