What is an NFT?

A non-fungible token (NFT) is a unique digital asset that represents ownership of real-world items like art, video clips, music, and more. What does that mean exactly? In essence, it’s a new way to prove who you are and what you own online, as well as protect your work from being pirated or stolen. You can use an NFT to represent just about anything you’d like.

What are the benefits of using NFTs?

CryptoKitties, for example, enables users to breed digital cats with each other and buy and sell them. The Ethereum-based platform has already seen more than $1 billion in sales of digital kitties since its launch in late 2017. Ether also functions as a type of NFT, representing a virtual currency that can be used to purchase goods or services. Because it can be sold or transferred, Ether qualifies as a cryptoasset — though its level of fungibility differs from others on our list. Another big benefit of using NFTs is their potential for securitization. Like gold bars, some cryptoassets are divisible into smaller units that can still hold value. They may not have any intrinsic value, but they’re still worth something if someone else wants them. So what if you could take one large token (like Bitcoin) and break it down into several smaller tokens (like Satoshis)? You could then sell those individual tokens without impacting Bitcoin’s price — meaning there would no longer be a need to wait until you hit your desired price point before selling your assets.

When would you use an NFT rather than another cryptocurrency or platform?

There are a number of reasons why you might want to use an NFT instead of another digital token or platform, but there’s one that stands out: censorship resistance. In centralized systems like eBay, you run into problems like when PayPal removed Gab’s account because they claimed it was being used for illegal purposes. With a decentralized system like Ethereum-based tokens and platforms, censorship becomes much more difficult (although not impossible). Using a single digital currency like Bitcoin isn’t likely to keep your content safe—just ask Satoshi Nakamoto! If you have valuable intellectual property or content in any way connected to politics or social issues, using decentralized technologies will ensure your freedom to express yourself without fear of persecution from regulators or third parties.

How does it work?

A NFT, unlike a fungible token like Bitcoin or Ethereum’s Ether, represents ownership of a unique asset. One hundred billion total tokens may be created in a blockchain-based NFT system to represent any kind of real-world asset. When someone purchases that token for use on their favorite gaming platform, for example, they are technically buying ownership rights in that specific game. Using ERC721 or ERC1155 standards, these tokens can be easily tracked and traded on cryptocurrency exchanges and other platforms. (You can learn more about both standards below.)

Why do people need a way to prove ownership with something that can’t be duplicated, cloned, forged or counterfeited?

The question on most people’s minds when they first hear about non-fungible tokens is why anyone would need to prove ownership of something that can’t be copied, forged or counterfeited. After all, conventional ownership works just fine for fungible assets (things like currency, property and commodities that are identical and thus interchangeable), but what if your digital asset represents a unique piece of art or a collectible item like a video game character? For many unique digital assets, conventional methods simply aren’t enough. To start with, you could photograph or scan your artwork and save it online, but as soon as you do that you lose track of its physical location.

Do I need to understand Ethereum blockchain technology to use it?

Ethereum blockchain technology, or smart contracts as they are sometimes called, can be confusing to understand. But you don't need to know all of it in order to use non-fungible tokens (NFTs). A company called CryptoKitties provides a simple example: If you buy a virtual cat on their platform, then another user cannot take your cat away from you. It's like you're buying an exclusive license for that virtual cat. Because these tokens are digitally scarce and encrypted on Ethereum's blockchain, anyone with a smart contract and ether can own one of these crypto collectibles.

How does it differ from ERC721 or ERC1155 tokens on the Ethereum blockchain?

On Ethereum, non-fungible tokens (NFTs) are implemented as ERC721 or ERC1155. While both token standards represent unique assets on the blockchain, each standard has different features and benefits for developers and end users. For more information about these standards and how they differ from one another. check out our post, What's The Difference Between ERC721 & ERC1155 Tokens?

Where can I find out more about this technology going forward?

Coinbase, is one of several major crypto-exchanges which has announced support for non-fungible tokens. The trading platform announced on Twitter that it would begin to enable trade in ERC721, a widely adopted standard for tokenized assets such as collectibles. As such, many other popular crypto exchanges and platforms like OKEx and Rarebits will likely follow suit. While these developments are important, you might also be interested in keeping up with how projects and companies associated with blockchain are utilizing non-fungible tokens.