Non-Fungible Tokens Explained Simply

Non-Fungible Tokens (NFTs) – All You Need To Know

In this post, we’ll unpack all you need to know about Non-Fungible Tokens, defining exactly what they are, potential real-world use cases and more.

What Is A Non-Fungible Token (NFT)?

A Non-Fungible Token (NFT for short) is a digital cryptographic certificate stored on a blockchain that represents a unique asset. In short, it is a way to authenticate an asset.

NFT’s allow you to prove ownership of assets, sell anything that someone else finds valuable, earn royalties on what you own and what you create and finally accumulate wealth as the value of your assets appreciates.

NFT real world use cases include art, certification, clothing and wearables, collectibles, gaming, hospitality, identification, music, real world assets and documentation, sports, supply chain, tickets, virtual worlds and voting.

NFT’s As Smart Contracts

An NFT is a “smart” “contract” “stored on a blockchain.”

Firstly, NFT’s are smart — the settlement mechanism is automated by code and therefore resolves without the need for a third party. Secondly, NFT’S are a contract — almost every single agreement in society is a contract. Contracts are the foundation of societies built on trust. Thirdly, NFT’s are stored on a blockchain — all contracts are stored to set a record of them. They are essentially a settlement mechanism, whether disputed or agreed.

In the future, all contracts will be digitalised and tokenised as NFT’s because they are more efficient, cheaper, faster and more secure.

The Difference Between Fungible & Non-Fungible Tokens

Fungible Tokens are:

  • Uniform: All tokens are the same.
  • Interchangeable: Tokens can be exchanged for any other token of the same kind. For example, one Bitcoin can be exchanged for one Bitcoin.
  • Divisible: Tokens can be divided into smaller units.

Non-Fungible Tokens are:

  • Unique: All tokens are different.
  • Non-Interchangeable: Tokens cannot be exchanged for another token of the same kind. For example, you cannot exchange your birth certificate for someone else’s birth certificate.
  • Non-Divisible: Tokens cannot be divided into smaller units.

Below is a table summary of the differences between Fungible Tokens and Non-Fungible Tokens.

Fungible TokensNon-Fungible Tokens
UniformUnique
InterchangeableNon-Interchangeable
DivisibleNon-Divisible
High LiquidityLow Liquidity

A New Era

In the past, creators have been at the mercy of their respective industries, intermediaries and platforms by having to adhere to their terms and conditions. Now however, thanks to NFTs, creators are able to keep track of their entire portfolio of work as it is being bought, sold and traded.

Creators can earn royalties and sell directly to consumers without paying commission to middle-men and can enforce specific criteria for their work so that it can’t be sold or traded without their permission. Using NFTs, creators get paid and continue to get paid whilst also maintaining control over their work.

On top of this, when an asset is tokenized (minted on the blockchain), it can be made accessible from anywhere in the world and therefore becomes much easier to trade. Consequently, for the first time in human history, anyone, anywhere at anytime has the power to build wealth through fractional ownership of assets that appreciate with time.

In short, NFTs give power back to both creators and consumers.

The Tokenisation Of Culture

NFTs can be thought of as the tokenisation of culture.

As Matthew Chaim writes here: “NFTs allow us to completely transcend the supposed conflict between scarcity and abundance. We can now truly have our cake and eat it too. Content now gets to be both scarce and abundant.”

Furthermore, he says: “By creating a rare 1 of 1 NFT that represents a potentially famous and ubiquitously consumed file, we open the doors to capturing the value of viral content. Not by necessarily monetizing each instance that content is consumed, but by the value of that original NFT going up with the cultural significance of its associated art.”

As an analogy, we can use the example of sports cards. Let’s imagine you own a Cristiano Ronaldo sports card. Everyone everywhere can watch him play football. As Ronaldo’s stock in culture increases, so too does the value of the sports card you own.

NFT’s Will Allow The Release Of Trapped Capital

NFT’s unlock new economic potential by facilitating the resale of assets. For example, if an individual buys an event ticket but later finds they can’t attend, they can seamlessly resell it. Likewise, hotel bookings no longer need to go to waste; they can be resold if someone’s plans change. This system not only ensures asset liquidity but also adds a layer of security and authenticity to each transaction.

NFT’s & Social Signal

Humans are hierarchal animals. Thus, we like status. It’s how we’re wired. Everything from the clothes we wear to the cars we drive are ways to signal status to others. NFT’s will be ― some may say already are ― another layer on top of that. In other words, NFT’s are a way to signal status.

Summary

Non-Fungible Tokens are a way to authenticate assets. They are unique, non-interchangeable and non-divisible.

NFT’s allow individuals to prove ownership of assets, to buy and sell assets, to earn royalties on assets and finally to create and accumulate wealth as the value of your assets appreciates.

NFT’s offer creators a revolutionary new way to monetize their brand directly with fans. If the definition of an NFT is minting something on the blockchain, then there is no reason why we won’t see a future in which any asset that can be digitalised, will be.

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