A non-fungible token (NFT) is a unique identifier that can cryptographically assign and prove ownership of digital goods. As NFTs for digital artwork has sold for millions-- sometimes tens of millions-- of dollars, to say they're popular could be an undersell. In the first half of 2021, NFT sales hit $2.5 billion. However, once you understand how NFTs work, you'll see there are additional use cases for this technology.
What is an NFT?
NFT stands for "non-fungible token." At a basic level, an NFT is a digital asset that links ownership to unique physical or digital items, such as works of art, real estate, music, or videos. NFTs can be considered modern-day collectibles. They're bought and sold online, and represent digital proof of ownership of any given item. NFTs are securely recorded on a blockchain-- the same technology behind cryptocurrencies-- which ensures the asset is one-of-a-kind. The technology can also make it difficult to alter or counterfeit NFTs.
To really get a handle on NFTs, it's helpful to get familiar with the economic concept of fungibility. Fungible items can be exchanged with one another with ease because their value isn't tied to their uniqueness. For example, you can exchange a $1 bill for another $1 bill, and you'll still have $1 even though your new bill has a different serial number. Non-fungible items aren't interchangeable. With NFTs, each token has unique properties and isn't worth the same amount as other similar tokens. So why are people shelling out so much money for NFTs? "By creating an NFT, creators are able to verify scarcity and authenticity to just about anything digital," says Solo Ceesay, co-founder and COO of Calaxy. "To compare it to traditional art collecting, there are endless copies of the Mona Lisa in circulation, but there is only one original. NFT technology helps assign the ownership of the original piece." Selling NFTs has been a lucrative business in the art world. Here are a few examples you may have heard about: Digital artist Beeple sold "Everyday's-- the First 5000 Days" for $69.3 million through a Christie's auction. A 20-second video clip of LeBron James' "Cosmic Dunk # 29" was sold for $208,000. A CryptoPunk NFT sold for $1.8 million at Sotheby's first curated NFT sale. Twitter CEO Jack Dorsey auctions an NFT of his first tweet, which sells for $2.9 million.