Demystifying the “NFT” term: Breaking down a Non-Fungible Token

non-fungible token NFT

Digitalization has overtaken the majority of industries. Why couldn’t art fall into this category… Of course, it could. Over the last few years,  a new category of blockchain technology has been developed. It is known as a Non-fungible token. They are digital art like videos, photos, or even audio which are stored on a blockchain and they can be traded. At the same time with crypto development, there has been an investment interest in NFTs which has surpassed every expectation. 

Let’s talk about the term fungible.

It is defined as an object which is exchangeable with a similar one. Let’s say you want to buy a purple hoodie. You search online and the hoodie costs 49$. If you buy this hoodie, you do not care which specific one they are going to send you out of the thousands they make in your size. This hoodie is replaceable and this is what makes it fungible. As long as you get one that is the same as the rest, it is worth the same to you and is interchangeable. Let’s talk about a hoodie you have had for a long time to which you have an emotional attachment and desire to wear and keep. This hoodie is not replaceable and non-fungible. It is the only one on the planet that exists and has emotional value for you.

All sorts of goods that are sold in our economy are fungible and non-fungible. A six-pack of beer is fungible, you just want one. You do not care which one you get. On the other hand, the Mona Lisa painting is non-fungible because there is only one. Unsurprisingly, a non-fungible token is way more valuable than a fungible one. This is the “NF” part of the NFT.

what is a non-fungible token NFT
Now let’s talk about the “T” which is the Token.

It refers to a digital certificate that is stored on the database of blockchain with distributed ledger (DLT) security. This certificate of ownership is accessible for everyone to see. It is not too dissimilar to the deed you get when you buy a physical house in the physical world but instead of a house, NFT denotes ownership of a file on the internet. We have been sharing images for free since the advent of the internet. NFT is the technology that has come up to give economic value to these images and art which so far had been exchanged for free between users.

The technology that NFTs are based on can provide, through cryptography, the creation of tokens that are not equally valued. Thus, investing interest is rooted in the uniqueness of the digital asset – object. You can relate it with owning a unique art. Imagine that even money in its traditional form is fungible therefore you can exchange a $10 bill with two $5 bills because both are fungible. The more NFTs are seen, appreciated, and understood, the higher the possibility of to increase in value due to their non-fungible token uniqueness.

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