So what exactly is an NFT and what does fungibility mean?
It's very important to understand these. NFT stands for Non-Fungible Token.
It usually represents the ownership of a digital asset, but it can also represent the ownership of
a physical asset, as you will be able to see later in the NFT use cases section of this course.
NFTs can be owned, collected, and traded, NFT must be unique, they are or at least
be part of a limited edition, you cannot multiplicate
NFTs Unlimitedly. And they must represent the ownership of an asset and they are also interchangeable.
interchangeable. The process of transforming an asset into a token is called tokenization,
and a token is like a certificate of an asset that it represents and NFT can be seen as a certificate
of ownership and a certificate of origin of an artwork.
Why do NFTs have values or at least some of them?
Well, you can see the parallelism between tokens and a banknote,
for example. A $50 banknote is just a worthless paper.
However, it represents the buying power, the purchasing power of 50 dollars.
And people believe that it has value. In the same way,
people believe that a token representing an asset like art and artwork has value.
It's enough.
If people believe that it has value, then it has value and there is a market for it.
There are many forms of assets such as physical assets, things like property, a car or gold, and
digital assets like Bitcoin is here.
Ethereum, numbers in your bank account or digital arts.
These are all assets that can be represented in the blockchain.
And we also need to understand what's fungibility.
Fungibility means that
the assets share the same characteristics and they are interchangeable and can be divided.
For example, if I give you a fifty dollar note and you give me a different fifty dollar note, I have
the same value.
Or if I give you a $50 note and you give me five times ten-dollar notes, I will also have the same
value.
It's all the same.
If I send you one bitcoin and you'll send me back to times of Bitcoin, I'll basically have the same
value.
However, non-fungible assets are different.
They are unique.
And if I send you, like, a Monalisa and you send me The Persistence of Art from Salvador Dalli,
they are different, right?
They don't have the same value.
So, it a non-fungible token represents a unique asset that cannot be simply exchanged with one another
and cannot be divisible
also. They have unique characteristics.
OK, another example,
certain Pokemon cards like Pikachu have a different value from Alakazam.
They are different cards.
Make sense?
Also, if I cut to the Pikachu card into pieces, I will destroy its value.
And most of the times, I cannot divide non-fungible assets.
I just cannot divide the Mona Lisa painting, right? The same way,
NFTs are unique in value and cannot be divided as they represent one unique single asset,
like one Pokémon card or one Mona Lisa painting.
Now, why do we need blockchains in here?
Well, Pokémon cards are managed in a centralized way.
They are managed by a company in Japan that decides how many cards they are going to print.
And they manufacture new cards.
They control the supply and demands and they control the artwork of those cards.
We trust that they are doing a good job, but someone working for the Pokémon company, I don't know,
could eventually try to print a few extra rare cards for his friends.
And this will be unfair, right?
Blockchain allows artists to control this and to self-publish their digital art in a decentralized manner
without the needs of a centralized company to validate their work's
uniqueness. The uniqueness can be validated by the blockchain. Blockchain is like a huge immutable database
that is distributed across thousands of computers.
Everything is transparent, invisible to everyone. Blockchain really allows the creating NFTs that can verify
the ownership and be exchanged.
And they are indivisible.
They are secure and they are unique.
An NFT is this digital certificate stored in the blockchain. Any blockchain that supports
smart contracts can have NFTs.
But most of the NFTs are created in the Ethereum blockchain.
And also it's important to say that NFTs allow the creation of digital assets from real artwork, Okay?
allowing to create limited editions that can be tracked digitally.
It is impossible
to forge an NFT. Although there are many scams involving NFTs and we are going
to talk about that later in the security, NFT safety security section.
One more advantage of NFT is that the creator can also be compensated for future sales. The NFT
can, the NFT smart contracts can define a royalty percentage that will be paid to the artist every time
the NFT is sold in the future.
And this can happen, you know, totally automated way, which is really wonderful.
OK, I hope you can see the advantages of NFTs and why do we need NFT and what is an NFT.