What is a Non Fungible Token or NFT? Explanation for beginners

Abhimanyu

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Photo by Author - Courtesy various NFT projects

NFTs are all the rage nowadays, but not everyone understands their true potential. These are digital tokens that will completely revolutionize entire industries by changing the way we share and consume pretty much everything. That is huge, and we are just getting started in this phase of NFT adoption.

Think of it as the pre-social media adoption era back in the early 2010s or even before when Facebook, snapshot, Instagram, Twitter and LinkedIn were introduced, and people were sceptical about their usage. Most people thought - why would anyone care about what someone eats for lunch and sips before dinner. Or why would someone post on LinkedIn when it's just a resume sharing website.

Most people still believe that NFTs are a marketplace for digital art and discard them as gambling or something only for the wealthy. That's not true at all. Let me explain it in-depth, in simple language, throughout this article.

What is an NFT?

NFT stands for Non-Fungible Tokens. It is a unique digital asset such as art, trading cards, memes, gifs, video clips, audio clips, tweets, this article or an ebook, basically anything that one can create, store and sell on the blockchain. Once tokenized, these assets can be bought, sold and traded using cryptocurrency.

But it is not just an artistic or creative digital asset that you can flaunt to your friends, neighbours and family. One can even attach digital contracts to it that allows special perks such as access to a private conference, podcast interviews, exclusive events & parties, more future NFTs and much more.

Why is it called “non-fungible”?

Fungibility means interchangeability. So, any two units that can be evenly exchanged are fungible. Let’s say I give you a $10 bill. If you give me two separate bills of $5 each in return, we are even. It’s because every $5 bill holds the same value no matter what. So, money or fiat currencies are fungible assets. Similarly, bitcoin is a fungible token.

On the other hand, let’s think about two Harry Potter books. They may have the same story and book cover, but one of them is the first edition signed by J.K Rowling. So, you can’t exchange them evenly, and therefore they are non-fungible.

Frequently Asked Questions (FAQs) about NFTs

Why should I buy an NFT if I can just copy-paste the JPEG image and save it?

Yes, you can easily copy and paste an NFT art of the JPEG file. But that does not give you commercial rights to use that art anywhere else, nor does it make you the owner. An original Starry Night or Mona Lisa is extremely valuable, and anyone can make copies of them. But the original piece of art will always remain in the respective museums, and nobody can ever use them for commercial purposes as their company logo, official mascot etc. unless they legitimately purchase them.

Since NFTs are stored on the blockchain, a public record of the ownership is accessible by anyone. Also, a digital collectible is much easier to carry and flaunt than a physical collectible. When you buy a valuable piece of art or a souvenir, you can only show them to those who visit your home. But with NFTs, all you have to do is share your public wallet address, and anyone can see what you have got.

What use is an NFT to me if I am not interested in collecting art?

NFTs hit mainstream popularity when Mike Winkelmann, the digital artist known as Beeple, sold a painting for a whopping $69 Million. But that does not mean NFTs are only meant for selling digital paintings. This year, Gary Vaynerchuk sold his NFT collection called VeeFriends for $59 Mn during the initial dutch auction. On purchase of VeeFriends token, you receive a digital version of doodle art, originally hand-drawn by GaryVee. But that’s not it. Each token comes with a three-year admission token to VeeCon, a multi-day superconference with an extraordinary lineup of speakers, collaborative experiences and, an opportunity to network with a self-driven and like-minded community. Some tokens even come with other amazing redemption options such as face time with GaryVee, group calls and podcast interviews.

In essence, while NFTs in their current state looks like art collectibles, there is much more that creators can do with them to provide value to the buyers. There will be a time when coaching sessions, concert tickets, music video limited releases, financial statements and even real estate contracts will be stored on the blockchain through smart contracts and NFTs.

How can I start purchasing NFTs?

There are numerous ways to buy an NFT, depending on the project you are interested in. There is a range of blockchains that are becoming increasingly popular, including Ethereum (ETH), Solana (SOL), Polkadot (DOT), ImmutableX (IMX) and many more. Ethereum is currently the leading blockchain service for NFT issuance. Some of the most popular and innovative NFT projects such as VeeFriends, Cryptopunks, BAYC, The Doge Pound and Beeple are on the Ethereum blockchain.

Currently, you need to set up a non-custodial cryptocurrency wallet and set up an account on one of the NFT marketplaces such as OpenSea to start buying and selling NFTs. Read this article for a detailed step by step guide.

How to Buy a Non Fungible Token (NFT) For Beginners

Final Thoughts

NFTs will completely revolutionize entire industries by changing the way we share and consume pretty much everything. That is huge, and we are just getting started in this phase of NFT adoption.

  • Non Fungible Tokens (NFTs) are stored and traded on a blockchain platform, the most common one being Ethereum. It makes it trustworthy and tamperproof since counterfeiting is difficult for a decentralized and permanent record.
  • Creators can retain ownership rights over their work and claim resale royalties directly without the need for any third party such as a publishing house, media agency or any other distribution platform.
  • NFTs allows a shift of revenue from marketers (or distributors), to consumers through trading and gives complete autonomy to the creator.
  • An NFT comes with a digital certificate of ownership, and the transaction history is available publicly. When everyone is obsessed with Instagram blue checkmarks and vanity plates, this could mean endless opportunities for creators.

With all that said, NFTs are still in a nascent stage of their evolution, as a tradable asset, and investing in them is highly risky. They are volatile, and one must do proper research before making any investment decisions. It’s like investing in the cryptocurrency market in 2015. It could be a highly lucrative investment if you do your research and invest smartly. But make sure you only invest what you can afford to lose. This is Web 3.0. If everything goes well, NFTs will be omnipresent.

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I write about the latest in blockchain technology, cryptocurrency and NFTs. I specialise in breaking down complex information into simple language so it's easy to comprehend even for non-technical folks. Sometimes, I also enjoy writing about life experiences that are relatable and can help others in one way or another.

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