NFT (Non-Fungible Token) is a unique, indivisible digital asset that represents ownership of a real-world or digital item.

Fungible vs. Non-Fungible: The Key Difference

To understand an NFT, it's essential to understand the concept of fungibility. A fungible asset is interchangeable with another asset of the same type. For example, one U.S. dollar is interchangeable with any other U.S. dollar—they have the exact same value and properties. Similarly, one Bitcoin is interchangeable with another Bitcoin.

A non-fungible asset is unique and cannot be interchanged. A famous painting, for instance, cannot be swapped for another painting, as each has a unique value and history. An NFT is the digital equivalent of that unique painting. It is a one-of-a-kind digital certificate of authenticity and ownership for an asset. It can represent a piece of digital art, a video clip, a song, or even a virtual plot of land.

How NFTs Work

An NFT is created, or minted, on a blockchain. The process records the asset's ownership, its unique metadata, and its authenticity on the blockchain's transparent ledger. The most common blockchain for NFTs is Ethereum, but others like Solana are also popular. An NFT's ownership is secured by a smart-contract, and its authenticity can be verified by anyone. This ensures that even if a digital image is copied a million times, only the person who owns the NFT owns the unique, verifiable original.

Why NFTs Matter

NFTs have revolutionized the concept of digital ownership. They allow creators to monetize their digital work directly without relying on a central company. They have also enabled the creation of a new digital economy around art, gaming, and collectibles, which are now represented as scarce and valuable assets. For artists, NFTs have created a new way to earn royalties on secondary sales of their work.