NFTs exploded into popularity last year with news of NFTs being sold for tens of millions of dollars. But what are NFTs? NFT stands for Non-Fungible Token. As that does not make much sense to most people, I’ll explain in more detail.
First, let’s start with blockchains. A blockchain is a digital ledger. It is called blockchain because it is a chain of encrypted data called blocks. In these blocks are records of transactions and a cryptographic hash of the previous block. This means every block affects the blocks after it, and each block proves the legitimacy of the block before it, which makes this recording system very resistant against altering.
Blockchain’s many advantages such as its decentralized nature or its strength against double spending led to its use on cryptocurrencies. An asset on the blockchain that can be traded or sold is called a cryptographic token.
This technology can also be used to store other types of data, such as media. But while cryptocurrencies are interchangeable tokens, these stored assets may be valued differently. This makes these assets non-interchangeable, or in other words, non-fungible. Hence Non-Fungible Token.
NFTs gained popularity as they became a way to buy and sell digital art on the internet. This is different from just buying to access the art or supporting the artist as these NFTs can be sold to someone else. Even if there are several copies of the same artwork, each NFT is unique. Due to these reasons, NFTs became the digital version of collecting or flipping art.
So is it like owning a physical asset or buying the rights to it? No, at least not for now. Currently, even if you buy an NFT, someone else can just download the same data. You also cannot prevent people from using it. So what are NFTs good for? Well, not much other than the sentimental value of having an NFT of a thing you like or the potential of selling it at a profit. Beware that this is not an investment advice so move at your own discretion.