You might have heard of bitcoin and blockchain, but what the hell is an NFT?
NFT stands for “non-fungible token," a digital item that is built with the same blockchain technology as Bitcoin, but works a little differently.
First off, what does non-fungible mean?
A better way to explain this is to talk about what the word fungible means. Bitcoin is fungible. Just like a US dollar, one Bitcoin is worth the same as another single Bitcoin. Bitcoin can also be easily interchanged with another currency such as the US dollar via a normal exchange rate. At the time of me writing this, 1 Bitcoin is worth $63,135.
So, what does non-fungible mean? Non-fungible means that something cannot be traded or exchanged at equivalency. In simpler terms, NFTs cannot be interchanged with anything else, as they are completely unique.
Here’s an example comparing corn and houses. Fun right. Corn is fungible. A specific commodity like No. 2 Yellow Corn is fungible because it does not matter where that corn was grown, all corn designated as that specific type of corn is worth the exact same amount. Your house on the other hand, is not fungible. Sure, you might have the exact same house right next to yours. It could have been built by the same contractor, have the same interior, same paint, same everything, but the fact that it is in a different spot than yours makes it unique. The location of your house makes it completely different from all other houses in the world, making it non-fungible. There is no identical substitute for your house.
Back to NFTs
An NFT is a unique digital certificate tied to a unique digital asset. Think of it has a unique, one-of-a-kind collector’s item; say the Mona Lisa painting. There is only one Mona Lisa in the world, and someone owns it. When you own an NFT, you are the only owner of that token in the entire world.
Now let’s talk about valuing these suckers. Your NFT and the Mona Lisa are the same in principle, but why is your NFT not worth as much as the Mona Lisa?
The value of your NFT vs the Mona Lisa has to do with demand and scarcity. Your NFT is scarce, yes, there is only one of it. Where your NFT falls short is on the demand side. The Mona Lisa is worth so much because so many people in the world want that unique item. It holds sentimental value, historic value, and creative value to Billions of people. An NFT is like the Mona Lisa, but in digital form. No, you cannot touch it, but you can show it off and look at it like you would the Mona Lisa painting.