Chapter 3

What are NFTs?

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What Are NFTs?

What are NFTs? What is NFT art? What does NFT mean? How do NFTs work? Are NFT crypto coins? What are crypto collectibles?

It’s complicated stuff, we get it. But fear no more, we got you. NFTs explained below, but let’s first start with the term fungible.

Fungibility

NFT stands for non-fungible token. It is a digital asset that contains identifying information recorded in a smart contract.

This information is what makes each non-fungible token unique, and as such, they cannot be directly replaced by another token. This is the concept of fungibility. No two NFTs are alike, and as such each NFT is 1 of 1 and non-fungible.

This is quite different from fiat currency, where one dollar is the same as another dollar. There is no quantifiable difference between the two, and thus are fungible. The same thing exists with cryptocurrency such as Bitcoin. If you send someone one Bitcoin (very generous of you by the way), and they promised to pay you one Bitcoin back in the future, it wouldn’t matter to you which Bitcoin they send, as long as it’s one Bitcoin.

Divisibility

The other important difference is divisibility. Typically, NFTs are not divisible, in the same way that you can’t send someone part of a concert ticket or a painting. Half a concert ticket doesn’t give you admission to half the show. It’s not worth anything, and certainly not redeemable. Recently, there has been more experimentation with fractionalized NFTs, but they remain grey and have not been widely adopted yet.

NFT Examples

There are a lot of examples of NFTs, most notably has been different series of collectible profile pic avatars, such as CryptoPunks or Bored Ape Yacht Club. Each blockchain-based NFT from each collection is unique from each other, and is easily distinguishable with different sets of traits.

The unique information that quantifies each trait is what makes it a non-fungible token. This information is stored in a smart contract and immutably recorded on that token’s specific blockchain. Both CryptoPunks and Bored Ape Yacht Club were launched as ERC-721 tokens on the Ethereum blockchain.

Summary

In conclusion, NFTs are simply unique codes of information that correspond to a piece of content, whether that’s art, music, photography, or even just words on a screen. If it’s digital, it can be an NFT.