NFTs are Non-Fungible Tokens
An NFT, or non-fungible token, is a unique digital token that may represent ownership in almost anything. Unlike traditional cryptocurrencies such as Bitcoin and Ethereum, NFTs are non-fungible. A non-fungible item, such as an NFT, is one-of-a-kind, and cannot be replaced, replicated, or reproduced.
Alternatively, traditional fiat currencies, such as euros and dollars, are fungible. This means that one-dollar bill is of equal value to any other one-dollar bill. Each dollar can be exchanged for another dollar. Non-fungible items cannot be substituted for another without fear of loss of value, as each non-fungible item is unique and one-of-a-kind.
While each NFT is distinguishable from every other NFT, there are certain attributes that all NFTs have in common.
There are five basic characteristics of NFTs:
Proof of Ownership of the digital asset.
In many respects, NFTs act as a title or a deed to a piece of digital property. The NFT provides the owner with an unambiguous and immutable proof of ownership. As the NFT is encrypted on the blockchain, the NFT is secure, and ownership is clear. Hackers cannot manipulate or change ownership of NFTs.
A unique, one-of-kind ID that encapsulates all of an asset’s characteristics.
The code that creates NFTs has all of the information and characteristics of the NFT embedded in the code itself.
The rights and privileges that flow from that ownership.
As each NFT provides ownership in an underlying digital asset, the rights and privileges that stem from that ownership are forever entangled with the NFT itself. Once the NFT owner sells or transfers the NFT, the rights and benefits are also transferred to the new NFT owner.
Every non-fungible token is an encrypted digital asset. NFTs are stored and maintained on the blockchain, and the blockchain itself is an encrypted public ledger. The blockchain is hackerproof.
Registered on the blockchain.
NFTs are registered and maintained on the blockchain. The blockchain itself is an encrypted public ledger that is immutable. Every transaction is recorded forever on the blockchain and the ledger itself cannot be modified, corrupted or manipulated in any way.
These five separate attributes combine together to produce a unique digital asset known as an NFT. This digital asset that can be sold, created and transferred with ease due to the efficiency and speed of the blockchain technology.
Blockchain and Ownership
As discussed, NFTs are created and stored on the blockchain. A blockchain is a secure, decentralized public ledger that records all transactions. Bitcoin and Ethereum are examples of two cryptocurrencies that have their own blockchains.
Blockchains are immutable and hackerproof. At any snapshot in time, the ownership of an NFT is easily verifiable, as the blockchain is a transparent public ledger. Before the innovation of non-fungible tokens, it was difficult to prove ownership of digital assets. This created complicated issues with respect to copyright infringement and unauthorized use. NFTs prove ownership on the blockchain, providing a permanent and transparent record of who owns a particular asset.
NFTs allow for the ownership of anything digital. Prior to the creation of blockchain technology, the ownership of digital content was ambiguous, and transferring digitally owned content – and proof of that ownership – was nearly impossible. NFTs solve this issue. Title to any digital asset can be easily transferred from one user to another. The ownership of an NFT is unambiguous and clear.
The Provenance of NFTs
The provenance of all non-fungible tokens may be traced back to the creation of the NFT itself. This provides the owner with confidence that the NFT is authentic. The word “provenance” is defined by the Merriam-Webster Dictionary as “the history of ownership of a valued object or work of art or literature.”
In the art world, provenance is of the utmost importance, as it goes to the work’s authenticity and value. An artwork that was created in the 1500s by Da Vinci is worth considerably more than a fake made by a conman. However, distinguishing between an authentic piece of art and a fake has been a significant problem in the art world.
NFTs solve the issue of provenance. As the blockchain is a transparent public ledger, one can trace the origins of the NFT from its current owner to the creation of the NFT itself. There is never an issue of forgery or authenticity. This transparency is possible because of the security of the blockchain.
Above, we see an example of the provenance of a single NFT. The column to the far-left indicates the activity of the NFT. Based on this information, we can see the NFT was created approximately 5 months ago, and has been sold a handful of times at different price points.
We are also able to see each and every listing for the NFT, even if that particular listing was not successful. All of these transactions remain on the blockchain in perpetuity, thereby providing all users with a complete history of the NFT.
NFTs are Digital Collectibles
The creation of NFTs allows for the ownership of anything digital. The innovative technology behind non-fungible tokens allows for individuals to collect digital content. Indeed, because of NFTs, pieces of digital content may be collected, owned, traded, purchased and sold. Anything that can be formatted digitally can be turned into an NFT. Music, art, and photographs are all mediums that have been turned into NFTs.
It is important to note that NFTs are more than just screenshots or digital photographs. These non-fungible tokens enable the actual ownership of digital items. These digital collectibles can be easily sold or transferred to other users.
Above is an example of the Awk Monks NFT Collection. There are 8,888 NFTs in this particular collection. Collections can range in size from just one NFT to an NFT collection size of 10,000 NFTs or more. Each NFT collection is limited in size, which may add to each NFT’s rarity in the collection.
NFTs are Secure
NFTs are stored and maintained on the blockchain. NFTs cannot be hacked, manipulated, or changed in any way. This characteristic exists because all NFTs are built upon the same blockchain technology that created Bitcoin. It is a technology that is reliable, efficient and 100% secure.
The blockchain itself is immutable. It cannot be changed or manipulated. This allows for unambiguous and clear ownership of digital assets, including NFTs. Each and every transaction on the blockchain is recorded in perpetuity to ensure a clear record of ownership.
NFTs are Easily Transferable
NFTs are unique digital assets that are easily transferable between users. The blockchain technology allows for NFTs to be sent to other users easily and securely.
There is no need for a third-party intermediary, as consumers can interact directly with each other by sending NFTs via their respective crypto wallets. This secure process allows for high-valued digital collectibles to be transferred between users in a fast and safe manner.
NFTs Create Digital Scarcity
One of the key aspects of NFTs is the concept of digital scarcity. Traditionally, digital content has been easy to reproduce and distribute at little to no cost.
However, NFTs introduce a new level of scarcity by creating a unique, one-of-a-kind digital asset that can be owned and traded like any physical item. This is made possible by the blockchain, which is a decentralized, immutable ledger that ensures the authenticity and provenance of the NFT.