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What is an NFT?

By Steven Barrett on May 9th, 2022

NFTs have become a huge focus point for the cryptocurrency market and once you truly grasp the benefits of the technology it becomes apparent why. An NFT is a non-fungible token. We’ll get more into that, but essentially it’s a unique item. A special token that is unlike any others, different from the one before it and different from the one after it.

Fungibility is a term that’s existed for a long time in the realms of mathematics, economics, and theoretical physics. The most common example of fungible item is a dollar. If you give me a dollar and I give you a different one out of my wallet there’s fundamentally no difference to either one of us. However, if I gave you an ultra-rare silver dollar coin you might feel like you’ve come out ahead. That’s because that unique silver dollar is not fungible with the dollar it represents. It’s unique.

Fungibility, or rather non-fungibility equates to uniqueness. Items that are not fungible are unique and cannot be easily traded at equal values. Their respective properties dictate their value and people seek them out for what makes them special.

In cryptocurrency we have seen an explosion of interest in NFT items that are for sale. These items can be representative of all kinds of things and the market is still unlocking new ideas for what NFTs can represent. Ideas ranging from real-estate to digital art are on the table and people are continuously coming up with clever ideas and entire new realms of possibilities for use-cases.

NFT items can vary greatly and are not always purely unique. The minting process can see a number of copies of a single item minted in series, typically with a serial number to differentiate them. Most often the lower serial number copies retain more value similar to how a first-run baseball card or comic book is more valuable than later reproductions.

Another unique aspect of NFT items comes from their place on the blockchain. NFT items can be owned exclusively by a wallet holder and anyone else can verify that ownership by exploring the blockchain and inspecting the ledger themselves. This authenticity check makes a big difference. Consider the value of an authentic Picasso painting against a copy made to fool investors.

NFT items can be displayed publicly in a digital gallery. Much like a traditional art gallery where visitors can examine real art and trust its authenticity based on the curation and reputation of the museum – viewers of a digital gallery can view digital items and verify their authenticity on the blockchain. This represents a paradigm shift in digital artwork because no longer can someone simply take a screenshot and save it, then claim to be an owner. Now, ownership is tangible and something we can verify. People who curate an impressive collection can share that with the world and the legitimacy of their collection is understood by everyone.

These NFT items can be created by anyone using the ERC-721 standard on the Ethereum blockchain. Other networks have replicated this ability on their own blockchain. Typically they are all compatible with the Ethereum standard. The Ethereum standard lays out required parameters and necessary functions for maintaining integrity of the NFT items and giving users a way to interact with them. NFT items can be sold on aftermarket third party market-places.

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