NFTs are tokens that we can use to represent ownership of unique items. They let us tokenise things like art, collectibles, even real estate. They can only have one official owner at a time – no one can modify the record of ownership or copy/paste a new NFT into existence.
NFT stands for non-fungible token. Non-fungible is an economic term that you could use to describe things like your furniture, a song file, or your computer. These things are not interchangeable for other items because they have unique properties.
Fungible items, on the other hand, can be exchanged because their value defines them rather than their unique properties.
NFTs solve some of the problems that exist in the internet today. As everything becomes more digital, there’s a need to replicate the properties of physical items like scarcity, uniqueness, and proof of ownership. Not to mention that digital items often only work in the context of their product. For example you can’t re-sell an iTunes mp3 you’ve purchased, or you can’t exchange one company’s loyalty points for another platform’s credit even if there’s a market for it.
Here’s how an internet of NFTs compared to the internet most of us use today looks…
A comparison
| An NFT internet | The internet today |
|---|---|
| NFTs are digitally unique, no two NFTs are the same. | A copy of a file, like an .mp3 or .jpg, is the same as the original. |
| Every NFT must have an owner and this is of public record and easy for anyone to verify. | Ownership records of digital items are stored on servers controlled by institutions – you must take their word for it. |
| NFTs are compatible with anything built using Ethereum. An NFT ticket for an event can be traded on every Ethereum marketplace, for an entirely different NFT. You could trade a piece of art for a ticket! | Companies with digital items must build their own infrastructure. For example an app that issues digital tickets for events would have to build their own ticket exchange. |
| Content creators can sell their work anywhere and can access a global market. | Creators rely on the infrastructure and distribution of the platforms they use. These are often subject to terms of use and geographical restrictions. |
| Creators can retain ownership rights over their own work, and claim resale royalties directly. | Platforms, such as music streaming services, retain the majority of profits from sales. |
| Items can be used in surprising ways. For example, you can use digital artwork as collateral in a decentralized loan. |
Why should I invest in NFTs?
You may wonder why someone would invest in something that you can easily duplicate on a mobile or laptop. Expensive NFTs are being used as profile pictures on social media accounts to show wealth, much like business people wear expensive watches.
Many people are buying into the world of NFTs to be part of an online community. Owning certain NFTs can give you access to exclusive content and live events.
Digital investors are utilising NFT marketplaces to make large amounts of money in what they hope will be a short amount of time. Also, business models from many industries are getting reshaped to incorporate NFT trading. A single NFT can be bought and sold multiple times, but the buyer must pay a royalties fee to the original owner or creator with each sale. The royalties fee is typically around 10 percent.
Whether involvement in NFTs comes from financial interest, joining a community, or simply for the love of an art piece, the future of NFTs looks prosperous.