A non-fungible token (NFT) is a unique crypto asset with its own digital fingerprint that cannot be replicated. This proves verifiable scarcity and authenticity, meaning they are not replaceable by any other NFT. In the same way that the Mona Lisa painting cannot be substituted, you cannot replicate an NFT. Think of it this way - one bitcoin token is worth the same as another bitcoin token, and theoretically, you could trade bitcoin tokens with a friend, preserving the value in the exchange. NFTs do not function that way. NFTs are a one-of-a-kind digital entity, whether your NFT is a drawing, music, video, or other digital creation.
Just about anything digital can be an NFT. The lack of parameters surrounding NFTs has created some confusion, but most current news centers on how the art world works with this new digital medium. For example, Christie's auction of Beeple’s EVERYDAYS: THE FIRST 5000 DAYS fetched $69M in February 2021. NFTs are revolutionizing the art marketplace allowing for code written into the piece to provide royalties to the creator each time the NFT sells. But even the NBA sells videos of major playback moments as NFTs through its online marketplace, NBA Top Shot.
The value of owning an NFT does not come from becoming the only person who can enjoy that digital asset—others can copy the file. Instead, the value comes from specifically owning the work. The blockchain history of the purchase serves as a guarantee of authenticity for the owner. Simply put, many people may have a Mona Lisa poster, but there is only one authentic painting. Hopefully, it’s yours.
NFTs are also gaining popularity in the worlds of VR, AR, and tokenization of video game assets. They can also be used for ticketing services, or access passes to places online (buildings within metaverses, private discord servers, etc.) Apart from entertainment mediums, NFTs solve a few additional functions:
- Ownership of something online that is inherently unique
- A key or ticket to something
- A digital asset with highly specific parameters, such as LP tokens for Uniswap or highly customizable derivative products
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