Non Fungible Tokens (NFTs): what are they, how do they function and what’s giving them value? A guide for ‘dummies’

Some of you might have heard about Non Fungible Tokens, blockchain technology, encrypted digital assets or crypto currencies in general and may have sensed that they are hyping in the world right now, without, though, having really grasped what these are about or how they function. 

You may have bumped into articles and journals analyzing how NFTs are changing the crypto ecosystem or into apps from a growing online casino list which reward players with NFTs or gives NFTs as prizes for competitions, but you may still haven’t realized what’s all the buzz about them and why people are going crazy in obtaining and possessing such NFTs. Well if all these describe your relationship or knowledge extent when it comes to NFTs, then you can get all the information you need by reading the remainder of this article. 

Blockchain, cryptos and NFTs: an unknown world

There is an increasing share of the global population that is tech-savvy, digitally literate and innovation adopters, especially when it comes to aspects such as AI or breakthrough digital innovations – at least this is one very brief conclusion that analysts have reached when it comes to describing the growing ecosystem of digital assets, cryptocurrencies and NFTs. But for the biggest part of the world’s population and frankly for the average person on this planet, these concepts remain unknown. 

For some, words like NFTs and the whole concept of blockchain technology, cryptocurrencies, encrypted digital assets and Non Fungible Tokens continues to be a blurred area which requires not only further clarification, but breaking it down so as to make some sense. 

What are NFTs?

Well, in order to make NFTs easier to understand, we need first to say some things about the blockchain technology. In a few words, blockchain technology is a database where every transaction that is being recorded is immutable, transparent and the whole system is decentralized. It is the platform upon which cryptocurrencies work and it is the foundation of digital assets. 

Cryptocurrencies are fungible digital assets, which means that they can be replaced by one another. Just like fiat currencies, it doesn’t matter which Bitcoin for example you have, as long as you have Bitcoin. All Bitcoin is the same. 

NFTs, unlike cryptos, are tokens which are unique and they are essentially unique identifiers of digital assets. So, unlike fiat currencies, NFTs can’t be replaced by one another and it does matter which NFT someone possesses. And all these because, NFTs are tokens which represent a certain digital asset that has value.

NFTs’ function

NFTs have three main properties: a) they are indivisible, which means that they can’t be broken down into smaller units – as it would be the case with cryptos. b) they can’t be replicated, which means that each NFT is unique. c) they demonstrate authenticity and ownership, which means that NFTs represent the value of authentic digital assets and they indicate that those who possess them, possess the digital assets. 

Think of a digital artwork which without the blockchain technology and NFTs would be easily replicated, circulated and shared amongst users on the internet. Thousands of copies would exist on the internet and as such nobody could claim authenticity and no one could actually possess the real piece of art.  NFTs come to make sure there is one authentic piece of art, which has certain value, can’t be replicated and remain authentic and it is owned by the person who owns the NFT. 

The idea is just like in the physical world, there are unique assets which have certain value and are owned by specific entities, there are also digital assets which can have the same properties as the physical ones. This means that NFTs can be traded, transacted, purchased and sold. Actually some NFTs have been sold for incredibly large amounts!

Now think outside the box and imagine that NFTs don’t really have to confine themselves in the world of digital art, but can involve anything that has value or can generate value. And we are always talking for the holder, the owner or the collector of NFTs. For instance, there are utility NFTs which are tokens that can give access to certain benefits or events or bonuses or exclusive offerings. These NFTs have utility value and even if they don’t involve any collectibles, they can prove really essential and important for people.