What is a Non-Fungible Token (NFT)?
In economics, a fungible asset refers to something that can be easily replaced by an equivalent unit, such as money. For example, a $20 bill can be exchanged for another $20 bill or two $10 bills and the value would remain the same. On the other hand, non-fungible assets have unique properties and cannot be replaced by something else. Examples include a house or a one-of-a-kind artwork like 'The Last Supper'.
You can take a photograph or purchase a reproduction of the artwork, but there will only ever be one original. NFTs are "one-of-a-kind" digital assets that may be purchased and traded like any other form of asset, but have no physical form of their own. The digital tokens can be thought of as certificates of ownership for virtual or physical assets.
Key features of an NFT:
Digital Asset - NFT is a digital asset that symbolises Internet assets such as art, music, and games with a genuine certificate generated by the blockchain technology underlying Cryptocurrency.
Unique - It cannot be fabricated or modified in any other way.
Exchange - NFTs are traded on specialised exchanges such as Opensea.
How do NFTs work?
The majority of Non-Fungible Tokens (NFTs) are currently stored on the Ethereum blockchain network. Ethereum, like Bitcoin and Dogecoin, is a cryptocurrency, but it also supports the creation and storage of NFTs that have additional properties and functionality. NFTs can only be created and stored on blockchains that have the capability for smart contracts, as they are essentially digital assets that are represented by a smart contract.
Traditional artworks are valuable due to their uniqueness, but digital files can be easily replicated. NFTs solve this problem by allowing digital assets like artwork to be "tokenized," creating a digital certificate of ownership that can be bought and sold. Like other cryptocurrencies, the ownership of NFTs is recorded on a distributed ledger called the blockchain, which is maintained by multiple computers around the world, making it impossible to alter the records. NFTs can also include smart contracts that allow the artist, for example, to receive a percentage of any future token sales.
What prevents individuals from duplicating digital art?
Nothing. The $69 million artwork by Beeple has been seen by millions of people, and the picture has been copied and shared countless times. In many instances, the artist retains copyright rights, allowing them to continue producing and selling copies. The purchaser of the NFT, however, possesses a "token" proving ownership of the "original" piece. Several individuals equate it like purchasing an autographed print.