NFTs, or "non-fungible tokens" took the crypto world by storm. You’ve probably seen them. Or at least heard about an NFT. And your interaction probably involved learning that they’re "pictures on the blockchain", and they "sell for millions".
You somewhat on the right path. But, there’s far more to NFTs.
- NFTs are tokens that can’t be “split down”.
- NFTs can represent anything.
- NFTs aren’t just used for images.
What is an NFT?
A token is a cryptographic representation of something on the blockchain. It’s a abstraction of ownership. And the ownership is secured with cryptography.
For example. If you go to a casino. You might exchange cash for chips, "tokens". The games there only accept these tokens. And the games all give away prizes. The casino owners make these tokens, and they prove someone has paid, and also allow them to manage the ‘economy’ of the fairground. This works because they’re not easily duplicated.
But. A nefarious criminal gang figures out how to make these tokens. And goes to the casino with bags of duplicate tokens. And plunders the casino. And, it’s impossible to tell them apart from the real ones!
Crypto-tokens, on the blockchain, cannot be defrauded. Unlike real world tokens. Cryptographic tokens create ‘digital scarcity’.
Fungibility is a measure of how easily interchangeable something is. For example, a $5 note is not particularly fungible. Because you can’t tear it in half to make 2 x $2.50 notes.
However, a lump of gold is fungible. You can scrape atoms of it, and that’s its limit of fungibility.
Non-fungible tokens, are cryptographically-secured, non "split-able" tokens.
Why do NFTs cost so much?
NFTs cost so much because they are scarce. There is only a set amount of them, usually. And each one is unique. It may carry the same data, but the token address itself is unique. And digitally scarce. And provably scarce.
What are NFTs used for?
Many artists are storing digital media on NFTs. Images. GIFs. And they’re selling them for huge amounts of money. But, they can be used for pretty much anything.
The can be used for storing: music, video, tickets, data, passports, medical information; literally any data can be stored on an NFT provided the storage space is large enough. Enough title deeds to a house!
The production of the NFTs is what makes them so special. Usually digital things can be copied indefinitely. But, NFTs cannot be. They are provably unique.