What are NFTs?
Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other.
Unlike physical money or cryptocurrencies that are fungible, they cannot be traded or exchanged at equivalency.
For example, one bitcoin (BTC) is always equal in value to another bitcoin. Similarly, a single unit of ether (ETH) is always equal to another unit. This fungibility characteristic makes cryptocurrencies suitable as a secure medium of transaction in the digital economy.
NFTs shift the crypto paradigm by making each token unique and irreplaceable, thereby making it impossible for one non-fungible token to be equal to another. They are digital representations of assets and have been likened to digital passports because each token contains a unique, non-transferable identity to distinguish it from other tokens. They are also extensible, meaning you can combine one NFT with another to 'breed' a third, unique NFT.
In other words, 'non-fungible' more or less means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing.
A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card or sell it for fungible tokens, you’d have something completely different.
Take Pokémon as an example. You might exchange a Squirtle with a Psyduck, or put it on auction in the marketplace, where you will get crypto (fungible tokens) in return. How much it will be worth depends on the public perception.
NFTs evolved from the ERC-721 standard. Developed by some of the same people responsible for the ERC-20 smart contract, ERC-721 defines the minimum interface — ownership details, security, and metadata — required for the exchange and distribution of gaming tokens. The ERC-1155 standard takes the concept further by reducing the transaction and storage costs required for NFTs and batching multiple types of non-fungible tokens into a single contract.
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 centered around collectibles, such as digital artwork, sports cards and rarities. Perhaps the most hyped space is NBA Top Shot, a place to collect non-fungible tokenized NBA moments in digital card form. Some of these cards have sold for millions of dollars.
Recently, Twitter's (TWTR) Jack Dorsey tweeted a link to a tokenized version of the first tweet ever, in which he wrote: 'just setting up my twttr'. The NFT version of the first-ever tweet sold for more than $2.9 million.
1) Investopedia. By RAKESH SHARMA Updated June 22, 2022Reviewed by DORETHA CLEMONFact checked by PETE RATHBURN
2) The Verge. NFTs, explained. By Mitchell Clark . Updated Jun 6, 2022, 8:30am EDT