Twitter and Discord might be raging with NFT giveaways these days, but not everyone knows what exactly makes these cute, pixelated illustrations so valuable. Fortunately, NFTs are so simple to understand at their core that even a 5th grader can grasp the basics of how they work.
To understand what makes non-fungible tokens so valuable, we need to understand the meaning of the word fungibility first.
When we describe something as fungible, we’re talking about an item you can replace with something similar without any issue. Think of a dollar bill: you can cut it with scissors, and it will lose value. However, you can find many other dollar bills lying around and replace the cut one with a different one.
An apple could be considered another example of a fungible item. You eat the apple, but you can also find another apple simply by walking through the grocery store aisle. In fact, you can find dozens of apples.
Now imagine your favorite book. Most likely, there are thousands of copies of this book being sold in libraries worldwide.
However, your copy is unique because it’s the only copy signed by its author before said author passed away. If the book is lost, it can’t be replaced because the author can’t sign it again, thus making it non-fungible. A non-fungible item can’t be replaced at all.
This exclusivity makes the concept of NFT’s unique because instead of real-life items such as limited edition artwork or one-of-a-kind books, they are digital. Digital media such as songs, paintings, or videos are fungible by nature: the whole point of them being digital is that you can reproduce them quickly.
A non-fungible token applies limited edition value to digital media and uses the Blockchain to prove value. Blockchain works by keeping a big digital logbook of who owns what and where you can find the money. By employing
When you purchase an NFT, you’re telling the world that you own one of only a few officially produced original digital media of that artist. Be it paintings, videos, games, songs, WhatsApp stickers.. you name it, as thanks to their digital nature, an NFT can even be something as simple as a tweet.
No matter how many people screenshot the NFT, there are only an x number of original tokens, making them unique.
People purchase NFTs because they are similar to famous paintings for art galleries: you can buy them one day, and when they rise in value due to scarcity, you can resell them later.
The purchase of the NFT includes the item and the certificate of authenticity of the digital good on the Blockchain.
Yes, someone could take a screenshot or screen recording of an NFT and pretend to own it, similar to real-life counterfeit goods. You can forge a famous painting, but it’ll never reach the same value as the original painting.
Nevertheless, you’re the only one with the certificate of ownership of the NFT, which makes it exclusive and possibly, expensive.
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