What is a non-fungible token?

What is a non-fungible token?

Non-fungible tokens, or NFTs for short, have been on everyone's mind for the last year and a half. In essence, anything can be an NFT if it is digitized and implemented on the blockchain, from photos and videos, all the way to sounds and even in-game items. Some of these tokens are selling for a lot, with a few even going for tens of millions of dollars.

But are they worth it? When it comes to this question, there are people on both sides of the fence. One side believes that this will be a short-lived hype, and is doomed to fail. While others think that this is the future of art, as more and more people are joining the blockchain ecosystem, thus creating a demand which is destined to grow even more.

4 Things We Should Know About NFTs

  • NFTs are any digital assets that are placed on the blockchain
  • NFTs are non-fungible which means that no two NFTs hold the same value
  • They are a new concept that needs a cautious approach when investing
  • Each NFT is unique or part of a very limited set
  • There are NFT marketplaces and music NFT marketplaces where you can trade NFTS

What Are NFTs

As we mentioned earlier, anything can be an NFT, as long as it can be digitized. So, art, music, videos, photos, game items, and many more types of NFTs are available on the market. These items are usually sold for crypto and even use the same technology to be transferred and stored.


First, non-fungible tokens started to show up in 2014, but at that time interest in crypto and blockchain technology was not as present as it is today. Just recently NFTs gained popularity and almost equaled the value of the global fine art market.

Just like most fine art, NFTs are usually one of a kind or a part of a small limited run, with unique identity codes.

This stands in contrast to standard digital assets which can be created infinitely, and with NFTs being unique or in limited supply, it gives them value, as long as there is demand.

Many of those NFTs are not original creations as people found it to be profitable to create NFTs of already existing stuff. One of the hottest NFTs right now is NBA clips, which are put on a blockchain and have proof of ownership.

Everyone can look on the web for those collections and view them for free, and even screenshot them. So you might be asking yourself, “Why should I pay money for them?” Well, you can also find the work of Picasso on the internet to print and hang on the wall for your enjoyment, but it doesn’t mean you own it. The same thing can be said about NFTs. Yes, people can access them, but with their built-in authentication, the original owner has all the rights and proof of ownership, which means anyone else can only use these NFTs for non-commercial purposes. 

"A complex system that works is invariably found to have evolved from a simple system that worked. So in that sense, NFTs are primitive, and people are going to recombine, and assemble, and compose those primitives to create incredible complex systems." - Naval

Difference Between NFT and Crypto

NFTs are usually programmed in the same way as cryptos like Bitcoin and Ethereum, but this is where the similarities end.

Other assets such as crypto and real-world money are fungible, which means they hold the same value. You can always exchange one Bitcoin for another Bitcoin and have an absolutely equal exchange. This characteristic is what makes them good and easy to use for trade.

On the other hand, NFTs are non-fungible, which means that each one can not be considered equal in value to another. For example, you cannot trade one Bored Ape Yacht Club NFT for some NFT by an unknown creator and call it an equal exchange. Even one Bored Ape NFT can not be considered equal to another Bored Ape NFT.


How Do NFTs Work?

Blockchain, which we associate with cryptos, is a public ledger, and it records each transaction made on it. This is where NFTs are stored, in those blocks just like cryptos.

Whenever we want to create an NFT, we have to “mint” it. What this means is that when we have a digital asset, that is not an NFT, we are able to put those assets on the blockchain and transform our digital assets into an NFT.

NFT’s can be anything, as long as they are available in a digital format. For example:

  • Videos
  • GIFs
  • Paintings
  • In-game skins
  • Music
  • 3D models

All of these can be NFTs if we want them to be. 

So when it comes to differentiating real-world collectibles from digital collectibles, there are no differences other than you can actually touch real-world assets, while NFTs are only available in the digital space.

Also, just like real-world assets, of which you can get a certificate of ownership, NFT comes with a unique code that is embedded within the blockchain, which certifies your ownership of a set asset. Artists are able to leave some comments embedded inside the code, just like they can with real-world items, such as autographs, notes, and more.

What Is Their Use?

Well, one of the best things about NFTs is that they give talented artists a new platform to express their vision and skills. When it comes to real life, the art world can be a cruel and challenging place with huge amounts of monopolization and power behind it. While the digital space of NFTs is more transparent and easy to navigate your way through, which gives creators a great platform to express themselves and gain a following.

One of the best mechanics that comes with NFTs is that they can be programmed in a way that artists can get royalties from future sales or use.

But this is not the only use of NFTs, as they are also used by huge companies to communicate with their customers, by releasing their own NFTs for people to purchase and be connected to the brand. They can be limited collectibles that come with some benefits, with things like early access to their products, future discounts, and many more.

Also, there are game-associated NFTs that give gamers something unique, that up until now was rare. Games usually have an unlimited number of the same items, which everyone can acquire. These game NFTs are unique, some of which even allow owners to generate money.

Should We Buy NFTS?

Since NFTs are a relatively new concept, their future is still uncertain and there are a lot of pros and cons associated with NFTs. So there is no definitive answer to this question.

It comes down to personal preference and research. If you find something that you like and it holds some value for you then it could be a good buy. For example, an NBA game clip of your favorite player can be a cool thing to own if you have the money for it.

But you also have to remember that, unlike other assets, such as crypto, which hold value based on many different factors, NFTs generally are worth as much as someone is willing to pay.

This means that if you want to sell an NFT you might have to sell it for less than you paid, or it might even not sell at all if no one wants it.

When it comes to money, NFTs can also be taxed, just like cryptos, depending on the country you reside in. For example, in some states of the US, NFTs are subject to capital gains tax.

In case you are keen on buying and owning an NFT, approach it with caution. Choose which type of NFT you want to buy. Does it have potential? Is it risky? What will you do with it? Etc.

What Have We Learned From This NFT Guide?

  • Difference between fungible and non-fungible assets
  • There are countless types of NFTs
  • NFTs are illiquid, and they are only worth what the buyer is willing to pay
  • Each NFT has its own unique code written on a blockchain to protect ownership rights
  • NFTs can be taxed

NFTs are a new concept, they live on blockchains and are unique or limited in numbers. This is something new when it comes to digital assets, but they are not too far apart from real-world assets, which means that they have potential. As the world grows more and more accustomed to the digital space, and with the recent development of the metaverse, these NFTs might become the collectibles of the digital world.

FAQs on Non-fungible Token

What are NFTs used for?

NFTs have many different uses. Some can be art just for admiration, some can be used for gaming, and there are also plans to implement NFTs into our passports and documentation.

Are NFTs a good investment?

It depends on who you ask. NFTs are new and still have things to prove, but they also have huge growth potential. If you are interested in investing in one, do research and buy an NFT that you find interesting and will have some meaning to you. As an investment, it might be risky.

Where can I buy NFTs?

There are many different marketplaces available for us to use. Each website is designed with a different audience in mind and types of NFTs available. If you are looking for the best NFT marketplaces, check our guide on them.