What Are NFTs?
In their most basic form, non-fungible tokens, better known as NFTs, can be understood as file formats. Before NFTs, people could use jpegs, pngs, or gifs to transfer information on the internet, but without provable ownership rights. NFTs are a file format that transmits data and value across blockchain networks, such as Ethereum. Since NFTs exist as tokens on a blockchain, these tokens and files contain characteristics similar to bitcoin and other cryptocurrencies, primarily digital verifiable ownership and transparency.
As we began above, "Non-fungible" refers to the concept of fungibility. An item is said to be fungible if it is identical and interchangeable. The major differing factor that separates NFTs and traditional cryptocurrencies is that NFTs have unique individual values. One Bitcoin is also worth the same as any other one Bitcoin, as they always have the same exact value, but this is not true for NFTs. For example, if an artist creates ten unique tokens of their most famous piece, the 1/10 token may be more sought-after by collectors than the 6/10, making it more valuable as a one-of-a-kind and unique digital token.
Many items are non-fungible, and almost anything can be tokenized or digitalized – diamonds, houses, baseball cards, etc. No two of these items are exactly the same: e.g., diamonds may have a different cut, properties have different locations, various builds, and differing characteristics.
In its simplest form, an NFT is a token (or a piece of information) that is unique. A typical example of an NFT is a digital trading card or a work of digital art. While NFTs are a way to transfer information (data), they also provide various benefits because of their blockchain-based existence. Smart contracts enable the creator to input factors that benefit NFT owners in varying ways throughout the ownership journey.
While the value of an NFT may change depending on how it's used, in general, NFTs provide the following features:
    Uniqueness: The hallmark trait of NFTs is that it is unique. Anyone can easily verify this on a blockchain.
    Permanency: NFTs have information and data that is stored within the token permanently. This information can include messages, images, music, signatures, or any other kind of data, and can never be changed once the creator mints the token.
    Programmability: An NFT is a piece of code on a blockchain. This means it can be programmed to have various qualities. One of the most valuable attributes of NFTs to date is that royalties can be programmed (or built-in) to the tokens. This allows an artist to obtain a royalty on all secondary sales of their artwork, continually rewarding them in an area that used to only previously benefit asset owners and auctioneers.
    They're permissionless: NFTs can be used in multiple ways if they exist on a permissionless blockchain like Ethereum. For example, Sorare – a sports trading card game – has third-party games (not built by the Sorare team) that utilize Sorare trading cards. NFTs can be used throughout the blockchain universe through permissionless interoperability.
    Digital ownership: Whoever possesses an NFT in their wallet wholly owns and controls the NFT. Digital assets like domain names (Google.com) aren't actually owned by Google, but instead by middlemen like GoDaddy or Verisign, even though they control the rights to the asset.
These qualities enable various new use cases for NFTs.
Last modified 6mo ago
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