Updated: Jun 21, 2022
You've probably heard about NFTs by now - they had a massive spike in interest globally earlier this year and are already changing the way that people interact, communicate and extract value from one another. But what exactly is an NFT and why are they such a big deal?
WHAT IS A NFT?
Non-Fungible Tokens (NFTs) are digital tokens that exist on a blockchain. When a token is fungible it means that it is equally interchangeable for another token of the same value. The easiest way to understand this is to think about money - If somebody owes you $10 and asks you to pick which of their $10 notes you want, you would tell them it doesn't matter because these tokens represent the same value (after telling them to stop asking stupid questions). When tokens are non-fungible it means that they are unique, not like any other and their value is subjective. NFTs can be represented as art, videos, tickets, access to communities, utility tokens and more. NFTs offer new ways for creators to engage and transact with their community in 'win-win' scenarios. Consumers now have an opportunity to participate in the economics of their favourite brands, content creators and communities.
Each individual NFT has a set of metadata such as the number identifying the token as part of a series, previous owners of the NFT and how many times the NFT has been sold. This means that even tokens that look like one another and have the same utility will be different and could lead to different valuations by the community. Is the #1 token in a series worth more than the #477 token in the same series? Is a NFT worth more because someone famous owned it previously? How one interprets and values metadata is subjective and plays a role in the market and community deciding how much these tokens are worth.
The only reason we can talk about NFTs is because of blockchain technology. Blockchains allow for something not possible before - verifiable ownership and true scarcity of digital assets.
So, what is a blockchain and how does it relate to NFTs? A blockchain is a distributed ledger network which has made the way that information and assets are stored and distributed to be more transparent, accessible and decentralised.
Whenever new information is added to the distributed ledger network, it is verified through consensus mechanisms to ensure security of the network. I know it may sound confusing, but you don't have to understand how all of this works in order to benefit from the technology.
NFTs are going to lead to wide scale changes within any industry that requires relationships between creators or service providers and consumers. It will revolutionise large industries such as finance, real estate and gaming. People and businesses are only now figuring out how to integrate this technology into the services or products they provide.
We have not yet experienced widespread adoption of this technology, however, I believe that blockchain technology, cryptocurrency and NFTs will lead to the biggest shift in how humans interact with one another since the internet.