This is Part 1 of a 2-Part explainer on NFTs. Part 2 will look at how NFTs are minted, bought and sold.
Let’s say you have $500 in your pocket and you are going to your landlord to pay this month’s rent.
You pass through a mall, and a laptop catches your attention on your way.
You decide to buy it — you pull out the $500 from your pocket and make the purchase.
But these were rent dollars, so how could you spend them on a laptop?
The answer: Because dollars are fungible.
Fungible is anything that is interchangeable – that is, you can replace it with something else without affecting its worth.
So, you could replace your $10 note with your friend’s $10 note without affecting your or your friend’s worth.
NFT stands for Non-Fungible Token, i.e., it is unique – like your children.
Let’s say you like Tom Cruise — now imagine his autographed poster with a serial number.
Imagine there’re only ten such posters globally, and you have the one with the number 7.
Also, imagine you could see the poster’s ownership history and that Michael Jordan had it before you (just this fact may increase its value by several thousand dollars).
This, in simple words, is the Non-Fungible Token, and it represents digital ownership of artwork that has a traceable history.
While anyone can right-click and download a digital artwork, they can never claim to have the original.
Like physical artwork, NFTs are bought for different reasons.
Some buy digital artwork because they enjoy art, some could do that to support artists, yet others look at it as an investment.
