What is an NFT?
NFTs can be complicated to understand if you’ve never heard of the term before. That’s okay! It’s never too late to learn, and here’s all you need to know in the simplest way possible-
We’ll break down the words “Non Fungible Token” separately and explain each of them, so that you can participate in the greatest revolution of digital ownership since the invention of cryptocurrencies.
Let’s explore the first two words: “Non Fungible”
As you can guess, non fungible means “Not Fungible”, but what do we mean when we say something is fungible?
When we say that something is "fungible" we mean to say that it can be easily replaced by another item of the same thing.
If I exchange a $1 dollar note with you, we both will have the same dollar.
Thus, currencies are fungible. $1 can be replaced by $1. 1 Bitcoin can be exchanged with 1 Bitcoin. 1 stock of Microsoft can be exchanged with 1 stock of Microsoft. These two dollars, two stocks of Microsoft, or two bitcoins don't contain anything unique that differentiates them from one another. They are functionally similar and can be easily interchanged.
But now, imagine for a moment that your father gives you a $1 bill signed by David Bowie, who is one of your favorite artists. Now, this $1 bill cannot be just replaced by another $1 bill. That dollar now means something to you, and thus, it ceases to be fungible. Sure, it can still be used as a $1 bill, but no one would treat it that way. This bill now has emotional significance, a story behind it, and no $1 bill in the world will be able to buy it from you. Now, a few years down the road, if you meet someone who is a big fan of David Bowie or just a person who collects artist memorabilia- they might offer you a generous amount for this dollar.
NFTs have streamlined this entire process in the digital realm.
Now that we understand what fungibility is, and what a “non fungible” asset is, let’s explore the T in NFT.
To put it simply, every cryptocurrency is just a decentralized online ledger indicating who owns how much of them.
In the same way, NFTs are just information about who owns what kind of asset.
The T, in NFT, stands for “Token”. What is a token?
In most blockchains like Solana, Ethereum, Cardano,etc. you can create a token on that blockchain. Anyone can create a token with whatever supply they want, give it a special symbol and name, and make that token tradable.
Suppose on the Solana blockchain, you want to create a token called “Hola” token. You can easily create it, set the supply to 1000, and then exchange this token around. If you’ve capped its supply to 1000, there will only ever be 1000 Hola tokens.
NFTs are just tokens on the blockchain with a capped supply of 1 and some metadata describing what information the token holds. Previously, this metadata(usually a picture) used to be stored on centralized services but now, they’re all stored on permanent Web3 services like IPFS.
Thus, every NFT now, and hopefully in the future, is a token on a blockchain with information about what the token represents (usually a form of media like art, music, gifs) attached to it that will exist forever. Because of the transparent nature of most turing-complete blockchains, we can easily verify who is the owner of that token. If you buy an NFT, it’s yours forever until you sell it. No one can take it away from you. No one can steal it from you.
Now, when you tell all this to someone, there is usually one thing that everyone questions, which is whether buying or selling NFTs have any value.
Why should you pay for a picture on the internet that you can’t even hold and hang on your wall physically?
It’s just a .jpeg or .png. You can just right-click > Save as.. and it’ll be on your computer. Why should you pay for it?
NFTs are the first time in human history that you can own, buy, sell and create a piece of media permissionlessly. This fact alone has allowed creators and companies to generate billions of dollars in value. Currently, at the time of writing this piece, the NFT market is valued at XX Billion USD.
The right-click>Save as argument immediately falls apart when you compare it to the physical equivalent of photocopying art.
You can photocopy The Mona Lisa. But it won’t have the same value as the original Mona Lisa. Why do people pay enormous amounts of money for an original Banksy for a Picasso, when they can just as well obtain a knock-off of them for relatively nothing? This is because people are not just paying for the art, they are paying for the history and lore associated with the original art.
NFTs, by virtue of leveraging the security and transparency of blockchain technology, goes on to not only assure the world that you are the rightful owner but also that no one can take your Picasso away from you.
In a decade or two, we’ll have Picassos and Banksys on the digital frontier. Perhaps they have already started, and perhaps, their works are currently selling for a price so low- it’d seem ridiculously cheap in a few years.
Or, perhaps, it’s you who might be the next best artist of our generation. Fortunately, thanks to NFTs, we don’t have to be Van Goghs, dying of poverty and only having our talent recognized after our death. We can all create art, create NFTs of them and sell them right now.
This isn’t just limited to art. Just like gamers pay every day for collectable and usable items in games like weapons, skins, etc, blockchain gaming using NFTs is set to flourish in the next decade. These NFTs of in-game items will make sure you’re just not buying something from a centralized source(the makers of the game), but trading items with active players of the game. THe “Metaverse” is the digital world we all live in everyday, and in this digital world- digital objects are destined to be scarce, valuable and trade-able.
Thus, NFTs are the new frontier. For the first time in history, they allow anyone to own a piece of the internet- a piece of their favorite creator or company, permissionlessly. We’re very excited about how this will evolve and empower creators all over the world, and I hope that after reading through this essay, you feel the same way. If you have a friend who is a creator that doesn’t understand NFTs, this is what you should send them.
If you’re a creator and want to create an NFT of your work, using Holaplex, you can create an NFT in minutes without any knowledge of code.