What is an NFT?
An NFT (non-fungible token) is a unique digital item stored on a blockchain. NFTs can represent almost anything, and serve as a digital record of ownership.
Before we dive into NFTs, it’s important to understand the “non-fungible” part of “non-fungible token.” When an item is fungible, it means it’s interchangeable with another of the same item. A classic example is a $1 dollar bill: you could swap dollars with someone and you’d both still have $1.
Non-fungible, on the other hand, means the item is totally unique, and therefore has its own unique value. For example, two cars of the same make and model might have different values based on how many miles are on the odometer, their accident records, or if it was previously owned by a celebrity.
How do NFTs work?
NFTs operate on blockchain technology. The blockchain is basically a large, digital, public record. The most popular blockchains are distributed across many nodes (read: people’s computers), which is why you’ll hear them described as “decentralized.”
So instead of a central company-owned server, the blockchain is distributed across a peer-to-peer network. Not only does this ensure that the blockchain remains immutable, it also allows the node operators to earn money, instead of a single company. Because the blockchain records and preserves history, it is uniquely positioned to transform provable authenticity and digital ownership.
The impact of NFT technology
Blockchain technology is revolutionary for digital items. With NFTs, digital items can be provably scarce, openly transferable, and have authenticated ownership. But you might be thinking…so what? For creators, these new attributes are incredibly powerful. Instead of distributing their artwork, music, or other creations on platforms that are traditionally hard to monetize, they’re able to sell unique and authenticated items on a blockchain-based marketplace. In addition to the initial sales, NFT creators may receive set creator earnings on secondary sales. For example, a developer could make an in-game skin that can be used across a variety of games and has established authenticity and ownership, and that developer may earn money other times that skin is bought or sold. This technology is revolutionary for collectors, too. Imagine you’re about to buy a concert ticket online— with NFTs, you can trust its authenticity, because of the undisputed blockchain history, instead of relying on the reseller’s word.