Non-Fungible Tokens-An Introduction

Introduction

NFT stands for a Non-Fungible Token.

Before we get to the token, let us first understand what are fungible assets and non-fungible assets?

Fungible asset is something that can be exchanged for another asset for the same value. This simply means that there are assets in the world which can replace a fungible asset, without any change in value. For example, a $100 note (asset) can be exchanged with Bitcoin having value worth $100. Or the $100 note can be exchanged with another $100 note or with two $50 notes.

Examples of fungible assets: cryptocurrencies (like Bitcoin, Ether), currency.

Whereas non-fungible assets are unique with unique properties. They cannot be replaced by any other asset in the world. For example, any car is unique. It has its unique properties.  It is only one in the whole world. There can be cars of the same model, but the one car is not same as any other car of even its own model. Similarly, any collectible like a painting. Like the painting of Monalisa. The original painting is only one in the entire world. You can copy the picture, but it will not be the original painting.

Examples of no-fungible tokens: house, car, digital art, painting, a recorded song, etc.

Pro-tip: Think of fungible and non-fungible assets like this- If I replace a fungible asset with another asset you will have no issue accepting it. For instance, let’s say you have a $100. If I give you two $50, or ten $10s or one $100 notes you will have no issue accepting it. Because you know the value remains the same.

Whereas, let’s say you have a car. If I tell you to take another car of the same model, you will think twice (not in the case of a higher model, of course). Because your car is unique and is only one in this world.

What is NFT?

A token (in the Ethereum  blockchain) which represents and proves the ownership of any non-fungible asset, or a unique asset is known as a Non-Fungible Token (NFT). These assets can be in the real or the digital world.

Example: NFT can represent and prove ownership of a real-world car or even real estate. The person (represented by a public key) who has the NFT assigned to him will have the ownership of the car or the real estate item.

NFT can also prove ownership of a digital art.

Some points to be noted:

  • NFTs are maintained in the Ethereum Blockchain.
  • Once recorded, in the Blockchain, an NFT cannot be changed (practically impossible) This is because the NFTs are secured by using cryptographic Hash methods.
  • Each token (NFT) has an owner which is easily verifiable.
  • NFTs can be bought and sold on any Ethereum based NFT marketplaces.
  • NFTs are tokenization of assets (unique or non-fungible). The person who has the NFT assigned to him/her owns the asset. This record is practically impossible to change. Hence, NFTs are one of the most secure ways of record management of ownerships of unique assets. It might happen soon that you will be proving ownership of your house by an NFT.

Use Cases

The various use cases of NFTs are given below.

  1. Digital Content: Getting better compensation of value for the Digital Content Creators
  2. Gaming: Creating compensation opportunities for gamers and better compensation for game developers
  3. Domain names: Creating easy to remember domain names, which have values attached to them also
  4. Physical items: Tokenization of physical assets to prove ownership, which is verifiable by all and immutable
  5. Investments and collaterals for loans

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