Crypto EDU

Non-Fungible Tokens

  • August 16, 2021
  • Expert
  • cryptocurrency
  • ethereum
NFT Animation Delivery (0-00-03-01)

Non-fungible tokens, or NFTs, have quickly become one of the most popular crypto-asset classes, thanks to a string of recent marquee sales. But what are they exactly? If something is fungible, that means that it can be exchanged or replaced with an identical item with no loss of value. For example, dollar bills, barrels of oil, pork bellies, and Bitcoins are all fungible goods. One is worth the same as any other. If something is non-fungible, however, it is unique—like a work of art or an autographed baseball. And then token, in a crypto context, means something is an unalterable unit of data that exists on a blockchain. Put that all together and a non-fungible token is a crypto asset that cannot be replicated. 

These new digital collectibles represent something of a paradigm shift. Before NFTs, works created digitally and posted online, like a JPG or a video, could be easily copied and shared. While you could own the copyright, it wasn’t possible to own the work itself the way you can own a sculpture or a painting. With NFTs, you don’t own the copyright, but you do own the bragging rights—and you can sell them whenever you want to. NFTs serve not only as a certificate of authenticity and ownership but also as a store of value and an investment. 

If you’ve heard of NFTs, you know that the market for them has skyrocketed recently. Famous memes, cartoon kittens, and other digital works that don’t conform to traditional notions of fine art are selling for hundreds of thousands of dollars, even millions. In March, Sotheby’s auctioned off the NFT for a mosaic of JPEGs by the digital artist known as Beeple. It sold for $69 million. After that, it seemed as if anything and everything could be tokenized. Twitter founder Jack Dorsey sold an NFT of his first-ever tweet for $2.9 million. A Lebron James dunk sold for $208,000. A Grimes video sold for almost $389,000. Even Lindsay Lohan got involved, selling a picture of her wearing a lightning-bolt earring for $50,000.

Why pay for something that everyone else can also have a copy of? It helps to think of an NFT like a game-worn jersey. Anyone can go to Champs and buy a Lebron jersey, but only one person can own the one he won his first championship in. They may look the same, but they are definitely not the same. NFTs are the digital version of that.

NFTs have practical applications as well. They can be used to represent physical assets like a vintage car, a house, a rare wine, or a painting. They can also be subdivided, allowing multiple people to own a stake in whatever asset the NFT represents. Once such assets have been tokenized, it also becomes possible to trace their sequence of ownership. Along with guaranteeing an item’s authenticity, the technology can also allow the originators of an asset—for example an artist or a vintner—to earn a percentage of the resale price. 

Why should you care about NFTs?

Because artists (and others) care about NFTs and the digital ownership rights that they create. The technology allows them to retain investment in their work even after it’s been sold. That extra control makes NFTs much more appealing than a simple one-off sale.

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