What Is an NFT?
Non-fungible tokens are an outgrowth of cryptocurrency. While cryptocurrency functions as money, non-fungible token’s function more like unique, valuable items, such as trading cards or collectibles. NFTs are identifiable and unique and cannot be divided. Non-fungible tokens use blockchain technology, much like cryptocurrency. Here are a few points to keep in mind when you hear about NFTs and their value.
What Is An NFT?
In its simplest sense, a non-fungible token is a method of declaring a digital asset. They are data, such as artwork, music, video, trading cards, or a digital collection, that is registered on blockchain technology. The technology enables the creator of the item to hold ownership of it, providing additional details of its location, price, and history. The item cannot be sold without the owner's consent. If sold, the new owner can hold the content, but cannot claim to be its creator. The NFT ensures that the creator of the work is always recognized.
The NFT/Blockchain Connection
NFTs depend on blockchain technology to keep track of their data. Blockchain is a database that stores information in blocks that are chained together and added on chronologically. The data cannot be changed once it is in the blockchain. The data within the blockchain can be easily searched and utilized when needed. If anyone tried to alter the data, the blockchain system would easily identify and isolate it. The system is decentralized, which means no one party owns it. If you have heard of Bitcoin, you will recognize that it uses this technology to keep track of buyers and sellers of the "coins." A Bitcoin is a fungible token, in that it is identical to every other token and can be divided up. Non-fungible tokens are different. They differ from one to another and are unique. A non-fungible token cannot be divided into parts.
Who Might Want To Create A Non-Fungible Token
An NFT establishes the origin of a digital item. The creation of the NFT ensures that the item is considered unique, increasing its value and the status of the creator. Artists and sculptors might want to register a work they consider valuable and rare as an NFT. The creator of a video game might want to be recognized as the originator of a unique work. Owners of collectible items may want to establish the history and provenance to ensure a good price.
So, What's the Point of NFTs?
NFTs designate an item's value as an original. It is recorded as a source that is identifiable and unchangeable. Having your art or image standardized as an NFT assures the buyer that there are no others just like it. Although an NFT can be reproduced, it cannot be recognized as the original, or "real" thing, and thus the reproduction has a lower value, just as a copy of a painting would have a much lower value than the original. The NFT is a way of establishing the provenance of the item – where it comes from and who created it.
New technologies have allowed new ways of negotiating the marketplace. Although they are not currently in wide use around the world, it's likely that they will be implemented to serve a variety of needs in the future. If you familiarize yourself with NFTs, you will begin to see their potential for a number of purposes.
Disclaimer: E1 Asset Management does not do business with cryptocurrencies. This article is intended for educational purposes.