In economics, a fungible asset is something with units that can be readily interchanged – like money. With money, you can swap a £10 note for two £5 notes and it will have the same value.
However, if something is non-fungible, this is impossible – it means it has unique properties so it can’t be interchanged with something else
What are NFTs?
In simple words, NFTs are non-fungible tokens. When we say non-fungible, it means that these tokens or assets are unique, irreplaceable, and provide exclusive ownership on the blockchain.
They are something of value that cannot be interchanged. NFTs can be anything digital, such as a piece of art, or drawings, or music.
This means that you own digital work in any form that no one else can possess. And depending on what its value is in the NFT space, you can decide to either keep it as a collectible or trade it for profit.
How do NFTs work?
At a very high level, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin, but its blockchain also supports these NFTs, which store extra information that makes them work differently from, say, an ETH coin.
It is worth noting that other blockchains can implement their own versions of NFTs.
How much are NFTs worth?
In theory, anybody can tokenize their work to sell as an NFT but interest has been fuelled by recent headlines of multi-million-dollar sales.
On 19 February, an animated Gif of Nyan Cat – a 2011 meme of a flying pop-tart cat – sold for more than $500,000 (£365,000).
A few weeks later, musician Grimes sold some of her digital art for more than $6m.
It is not just art that is tokenized and sold. Twitter’s founder Jack Dorsey has promoted an NFT of the first-ever tweet, with bids hitting $2.5m.
The Advent of NFT Ecosystems
As marketplaces have sprung up around NFTs, creators have taken advantage of their possibilities in different ways.
The best-known examples are the digital art market, described above, and digital collectibles platforms, such as Dapper Labs’s NBA Top Shot, which enables users to collect and exchange NFTs of exciting plays from basketball games — videos called “moments,” which are effectively digital trading cards.
Top Shot has been building in gamified challenges and other reasons to own the cards beyond just their pure collectible value, even teasing that moment holders may eventually receive real-world benefits from the NBA.
Why NFTs will be important for creators and businesses
With collectible art projects, royalties can be programmed into the smart contract. Typically royalties are set at around 10%. This means that every time the NFT is sold, a percentage of that sale is programmatically sent to the original creator’s wallet.
This guarantees that the original creators are always linked to their projects, a concept called provenance, and they’ll be able to share in the upside as their work becomes more well known.
Digital provenance is groundbreaking for art collectors who previously have had to rely on authenticity experts to determine if a piece of artwork is the real deal or not. And it’s estimated that up to 20% of paintings owned by museums could be inauthentic.
But if there is a record of provenance on the blockchain, it’s immutable and verifiable for ever. So if an unauthorized copy is created, it’s trivial to figure out that it’s a fake.
In some cases, creators have granted full commercial licensing rights to whoever owns their NFTs.
There are now two different craft brew companies using Bored Ape NFTs artwork—North Pier Brewing Company’s Bored Ape IPA and Alternate Ending Beer Co.’s limited-edition “Drink Your Peas” beer can featuring Bored Ape #3500.
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