What Is a Non-Fungible Token (NFT)?

What is Fungibility?

Before you can define ‘non-fungible’, you must have an understanding of what ‘fungible’ means on its own.

Collins’ dictionary defines ‘fungible’ as:

“being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind”

There are two parts to keep in mind here:

1. The exchange of the same nature or species. 
2. Whether it is exchangeable or replaceable in part or in whole. For example, it is possible to exchange a one-liter bottle of water for another. Same nature, same specie, same quantity.

On the other hand, exchanging one thing for another will not always ensure the same exchange value. One euro coming from the Vatican won’t have the same value as one euro coming from France. A Bitcoin freshly mined from a new block won’t have the same history as a Bitcoin that has been used on a Darkweb marketplace. The fungibility of an asset is therefore defined according to its uses.

Definition of Non-Fungible Tokens

Non-Fungible Tokens (NFTs) are cryptographic assets on the Blockchain that are distinguished from each other with unique identification codes and metadata. 

In 2021, Collins added the word to his dictionary, here’s their definition:

A unique digital certificate, registered in a blockchain, that is used to record ownership of an asset such as an artwork or a collectible

A non-fungible token is NOT fungible. It is a token that represents a unique asset with characteristics that are particular to it: it cannot be interchanged or replaced by another equivalent token.

NFTs can take the form of digital work, a virtual land, a domain name, or even equipment in a video game.

NFTs are simply a technological medium that allows any digital item to be stored and circulated virtually on a blockchain. To some extent, NFTs can be compared with computer files in the sense that their type and usage can be extremely varied.

NFTs to Preserve the Uniqueness and Authenticity of a Creation

Have you seen Pokemon cards? There are many basic Pokemon cards as well as rare cards. A rare card is much more valuable than a basic card and owning one used to be a big deal and came with a heavy price tag. It could also be stolen! 

In this tech age, everything has gone digital. If there was a special digital card, it could be easily duplicated by copying and pasting. So how can the uniqueness and authenticity of a special digital card be preserved? Non-fungible tokens are the answer.

Any digital property can be the ‘special digital card’ that’s transformed into a non-fungible token. As a result, it will be possible to identify the original card as unique due to being recorded on the blockchain. Now, it is possible to have special cards and art pieces thanks to the non-fungible tokens and blockchain.

Characteristics of Non-Fungible Tokens

Here are the unique qualities of non-fungible tokens that differentiate them from other tokens:

• Rare: Although the developers of non-fungible tokens can create as many tokens as they want, they often keep the supply of NFT limited so that they can be scarce to increase their value.
• Indivisible: Although this is not the case with all Non-Fungible Tokens, they are often indivisible. In most cases you cannot split Non-fungible tokens in half, and therefore you will have to buy the full Token. 
• Unique: This is the most highlighted feature of non-fungible tokens. There is a record of their uniqueness on a permanent information tab. This tab is like a certificate of authentication. 

Examples of NFT Usages

Let’s take a closer look at how NFTs can be used. In NFT Applications, we will review these different NFT segments in more detail.

• Video games: NFTs can be used in several ways in video games. In first-person shooter (FPS) games, they can take the form of skins for weapons or avatars. For role-playing games (RPGs), these NFTs can take the form of equipment such as weapons or armor as well as some mounts (pets). For card games (trading card games), NFTs can be the cards themselves and also the personalization of their terrain or the back of the cards.
• Digital art: Online, everything is infinitely duplicable. With NFTs, it has become possible to quantify the unquantifiable. Digital art, which requires many hours of work, can therefore be valued at higher levels closer to physical art. In addition, you can publicly verify the address of a wallet linked to an artist’s profile. The artist’s signature is therefore included in the NFT mint.
• Collectibles: Digital collectibles can take many forms, yet all exist for the same purpose: to be collected. Initially, a so-called ‘collectibles’ project has no other purpose than to be collected. This doesn’t mean that all collectibles will remain solely collectibles over time. The creators of collectible products often plan for them to be utilized in other areas such as in video games, or to act as a token to gain entry to a club or otherwise reward users. 
• Virtual land/metaverse: Virtual worlds are becoming more present in our lives. Whether as a means to organize an online art exhibition or play a massive multiplayer video game, NFTs can be used to represent plots of land on which it is possible to construct buildings or organize events.
• Utility: There are use cases of NFTs that focus on utility. Tickets for an event, decentralized domain names to facilitate transactions, diplomas… Not all of them have speculative value on a secondary market, but they do have a well-defined utility from the outset.

On our website, you can Explore the Market Tracker to view the activity for each one of these segments!

This work is licensed under a Creative Commons Attribution 4.0 International License.