Non-fungible tokens, or NFTs, are the latest digital craze. They are closely linked to the Cryptoverse, the digital domain where Bitcoin and other digital currencies live.
A dictionary definition of fungible I found is “(especially of goods) being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind”
My interpretation of this is that money is fungible because it can be freely exchanged, even though it can be exchanged for things of very different natures or kinds. And we could barter any number of commodities, so they are fungible too.
Non-Fungible
If something is non-fungible, then it cannot be freely exchanged or replaced or bartered for another item “like it” because there is only one of it and it has an owner. So a Picasso or Monet painting is non-fungible as it is unique and owned by somebody or some institution.
Token
Token has a number of meanings including:
“something serving to represent or indicate some fact, event, feeling, etc.”
“something used to indicate authenticity, authority, etc.”
“a stamped piece of metal, issued as a limited medium of exchange…at a nominal value much greater than its commodity value.”
A digital token has more of the last definition in it, it’s a digitally “stamped” virtual coin used for a limited medium of exchange and agreed to be worth more than what it’s made of (which is nothing because it only exists as computer code).
The work that the digital token is exchanged for is for the execution and verification of transactions on the blockchain. At the moment this may mostly be financial transactions.
Non-Fungible Token
So what is an NFT?
So we can finally put all this together and get a working definition of a non-fungible token or NFT. A non-fungible token is a digital representation of financial or artistic value which is unique and can be verified publicly as such. It has an owner and that can be verified too by anyone who wishes to look and can interpret the blockchain.
This is transferring property rights to the digital domain, allowing artiists of all kinds to market their work and get most of the proceeds. It cuts out the middleman, who often takes a significant cut of a creator’s value. NFT art is just now a big thing.
Tokenisation or Tokenization
I couldn’t find this in the dictionary app and on searching in Google the definition turns out to be quite complex but here goes.
Tokenisation replaces sensitive data with a unique ID symbol which stands for it. This is difficult to get one’s head around. I think it means that sensitive date is mathematically generated into a token. The information is still there but not out in plain sight for anyone to read. So
An approachable real-world example of a token is a casino chip. A $50,000 dollar casino chip represents a heap of dollar bills but is much more manageable, transferrable and secure than carrying the cash around.
The digital cryptoevangelists tell us that everything is due to be tokenised and then broken up into fragments which can be sold, swapped or sent to someone. This process is not quite clear but perhaps most evident in decentralised finance (DeFi) where financial assets can be divided up into small fragments and traded.
Bitcoin is an example. If we had to buy one at a time that would be awkward as the price is at this time of writing about $35,000. But we can buy fractions of a Bitcoin such as 0.01456, which makes it possible to “invest” in Bitcoin with relatively smaller outlays.
What is NFT Art?
So what is NFT art and what’s all the excitement about?
The idea of a digital artwork has been around for some years, but it is only in the last 18 months that it has really come to prominence.
Suddenly the market has exploded. Beeple, an artist, made an image of the 5,000 pieces of art he has drawn every day for the last 14 years. And is sold for $69 million! So something is going on.
If you want to see the most successful collections of NFT art, then go check out the Cryptopunks and the Bored Ape Yacht Club. They are very different but indicative of what’s going on in the NFT marketplace.