Non Fungible Tokens or NFTs have been making the rounds on the internet. It is a hot topic of discussion among many people, but especially so in the ‘crypto’ circles. But what exactly is a Non Fungible Token? This is the question that I will be answering in this blog post.
What’s Fungibility?
Before moving to Non Fungible Token, let’s talk about what is fungible. Fungible basically means exchangeable or interchangeable. Anything that is fungible can be exchanged or interchanged with something else of the ‘same type’ and hence, both of them are equal. For example, let’s say you have a $1 note, this note is fungible because it can be interchanged with another $1 note, and both the notes are essentially equal. Similarly, a 1 Euro note is the same as any other Euro note, 1 gram of pure Gold is the same as any other gram of Gold.
Now let’s talk about fungibility from the context of Cryptocurrencies. All cryptocurrencies are fungible because all the tokens of a Cryptocurrency are equal to any other token, there is nothing special about any one of those tokens. One Bitcoin is the same as any other Bitcoin, one Ether is the same as any other Ether, one Dogecoin is the same as any other Dogecoin.
What’s Non-Fungibility?
On the other hand, not everything is fungible. Non-Fungible items include, but are not limited to-
- Real Estate- No house is the same(or equivalent) as any other house, they have different sizes, different structures, and are present in various different localities, which affects both, their value and utility.
- Art- No work of art is the same(or equivalent) as any other work of art. Any piece of art is one of its kind. Is Leonardo da Vinci’s masterpiece Mona Lisa equivalent to any other thing in this world? Absolutely not!
- Cars- No car(or, even better, used cars) is the same as any other car. They all come from different manufacturers, are different models, are used to varying levels, and are in various different kinds of conditions.
In general, many of the real-world items are non-fungible. There is only one of their kind and they aren’t equivalent or the same as anything else.
Non Fungible Token
Once you have understood the concept of fungibility and non-fungibility, understanding a Non Fungible Token would be a cakewalk. A Non Fungible Token is a token(just like a cryptocurrency token) that represents ownership of a non-fungible asset on the blockchain. The non-fungible asset that the token represents can be anything, a real-world tangible item such as a car or a house or a virtual non-tangible item such as an image of art.
However, it is important to note the way Non Fungible Tokens are being used today, they rarely represent ownership of any tangible item. For example, in recent months, there has been a rise in NFT that represents ownership of art wherein people buy a digital form of the art, such as an image. While the ownership of these ‘Art NFTs’ does not forbid anyone else to see the image, it is just that the ownership of the art belongs to the rightful owner. These digital arts come in various forms such as Images, Movies, Songs, Memes, etc however, NFTs are being used to represent ownership for a lot of other items(mostly virtual).
I will be talking regularly about Cryptocurrencies and Non Fungible Tokens on this blog.
Meanwhile, you can check out my blog post on why Bitcoin is not as great as you think, here.