The world of finance is changing at an incredible pace. Such is the speed of the financial evolution; you can be forgiven for not knowing what many of the newest acronyms, for example, “DEFI”, mean.
One such acronym which has been gaining more attention than most is ‘NFT’, which stands for non-fungible token. This blog will cover what is meant by “non-fungible token” and the importance of this latest financial trend.
Let’s start from the top with “non-fungible” before getting to the complex world of tokens.
Non-fungible quite simply means unique, singular & unreplaceable.
As an example, iPhones are fungible when they are made. Apple creates millions of them. If you swapped the iPhone in the box that you originally bought with another unused iPhone, you’d have the same thing.
However, if you buy an iPhone, fill it full of your details, photos, contacts and then smash its screen and put a sticker on the back, you have a non-fungible item. There is and can only ever be one version of the iPhone you own. It cannot be replicated; there is only one in existence.
The unique nature of your smashed iPhone is the important factor here. Of course, your smashed iPhone is unlikely to be worth much to a buyer… NFTs, on the other hand, are in some cases worth millions.
NFTs are not physical
Unlike the tangible smashed iPhone, NFTs are digital. They are non-tangible as well as being non-fungible. Confused? You’re not the only one.
NFTs are digital assets, which can be drawings, music, graphics, pictures or anything really, as long as it is digital.
However, the NFTs which are generating the most attention and excitement is digital art.
How can you buy NFTs?
Most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, similar to Bitcoin. NTFs are built into the Ethereum blockchain, and as such, their value is linked to the value of Ethereum. Other cryptocurrencies could also create their own version of NFTs.
At this stage in the development of NFTs, the main way to purchase them is via Ethereum. Once you have ownership of Ethereum, you can use NFT trading platforms to buy and trade NFTs.
How much are certain NFTs trading for?
In late October, a CryptoPunk NFT sold for $530 million USD (124,457 Ethereum). This is just the latest headline story of an NFT being sold an astronomical amount. However, many NFTs are selling for minimal amounts.
Are they the future?
Serial entrepreneur Gary Vaynerchuk has described NFTs as the next big thing and has publicly advocated many ways he believes they can rocket in value. Vaynerchuck described how musicians could sell personal NFTs with built-in royalties instead of signing record deals to allow them to fund their careers.
However, other commentators are very wary of NFTs and think they’re nothing more than another social media-driven fad. Only time will tell if NFTs will become a long-term solidified form of tradeable value.