May 24, 2021
NFTs Explained: What Does Non-Fungible Mean, Anyway?
As we focus on finances this May, Casper Magazine has looked at e-commerce, ethical investing, and cryptocurrency – which got us curious about Non-Fungible Tokens (NFTs). These unique digital assets are rapidly gaining popularity, with more people buying and selling something a lot of people don’t even understand. So, let’s take a look at NFTs and how they’re changing how people see financial systems.
The confusion that comes with talking about NFTs often stems from the terminology involved (and even the name!). Non-Fungible Tokens tells us that they’re tokens that are not fungible, which doesn’t get us very far – but ‘fungibility’ is actually a fairly simple concept.
Something that is fungible has units that can be interchanged, with money being the most obvious example. You can exchange $20 for two $10 notes and it’s the same value, and the same goes for cryptocurrency: you can exchange one Bitcoin for another Bitcoin just like with physical currency. But NFTs are non-fungible, so they cannot be exchanged in this way. NFTs are unique digital assets in the same way that a painting is a unique physical asset: they can be sold but because they’re one-of-a-kind, they’re not interchangeable with another painting.
Let’s use the Mona Lisa as a specific example. There is only one genuine Mona Lisa in the world, so there can only be a single owner of it. Photos and prints of the painting are available for anyone to purchase, but people who buy those are not buying the original painting. The same principle works for NFTs: a single person or entity owns the ‘token’ – a piece of digital art, music, even a meme – and although other people can have copies of that token, there is only one owner of that unique token, i.e., the original. In this way, you can liken the NFT market to the physical art market, where people sell, bid on, and purchase unique pieces for their own collections – or to resell them.
The biggest difference for NFTs is that everything happens digitally. Just like cryptocurrency, the ownership of an NFT is recorded on a blockchain – like a digital ledger – and is identifiable through the NFT’s unique data. This data can even store specific information, like an artist signing their work in the metadata. These digital assets are usually held on the Ethereum blockchain, though other blockchains can support them, and are available for purchase on a few different platforms: OpenSea.io, Rarible, and Foundation are some of the biggest.
Like any marketplace, you can search, bid, and buy using the platform’s preferred cryptocurrency, but you can also incur fees for conversion rates or even for the energy required to complete the transaction. Blockchain technology is becoming notorious for its high energy consumption, making investment in cryptocurrency and NFTs a difficult choice for some because the environmental impact is considerable.
NFTs can also be seen as risky investments because of the uncertainty of their future: as a new technology, there’s not much history to judge the current market against, and swings in the worth of crypto and NFTs are common. It’s also possible – or even probable – that you won’t be able to resell an NFT for a profit because the market is based entirely on demand; that is, if no one wants the NFT you have, you’re not going to be able to sell it! Ultimately, it comes down to you, your research, and your affinity for risk.
So, there you have it – the basics of NFTs! Whether it’s a piece of art, a classic meme, a famous tweet, or a basketball highlight clip, an NFT is a collectible like any other (just virtual). If you decide to invest, make sure you keep an eye on the news – a single tweet by an influential player could dash your crypto dreams!
If you liked this article and want to know more, have a look at our article explaining cryptocurrency.