What are NFTs?
NFT stands for Non-Fungible Token which makes them unique digital assets that can’t be replaced with something else. Each NFT contains transparent and incorruptible in-built documentation using blockchain technology of their origin, ownership history and transaction values.
NFTs are a new type of digital asset with an importance placed on its non-fungibility. If we asked you to let us borrow $10, you most likely wouldn’t open your wallet and say, “Which bill do you want?” This is because a $10 dollar note is fungible. Each $10 note has the same value as every other $10 notes.
NFTs, on the other hand, are non-fungible in the sense that no two are the same. Each NFT is a unique asset that cannot be replaced by an identical version because there is no identical version.
An NFT can be a piece of digital art, a song, a poem, a baseball card, an entry ticket and so much more. Think of it as a digital collectible that lives on the blockchain. But what’s special about an NFT, as opposed to the art in your home or your old Pokemon cards, is that an NFT is created (or “minted”) on a blockchain, thus making it completely digital, trackable and immutable.
When something is minted on a blockchain, it — and all of its attributes — will live there forever. This means that an NFT can be purchased, sold, gifted, etc., and its history and value will forever be recorded on the blockchain.
Because of this, non-fungible tokens are the perfect medium for scarce assets such as art and collectibles, as their provenance and paper trail is open for anyone to see at any time. Similarly, they can never be torn, damaged, bent or broken. Unlike in most traditional art markets, many NFT marketplaces also enable 10% or more secondary sales royalties for creators in perpetuity, meaning artists continue to profit as their work increases in value!
NFTs enable true ownership of a digital asset in a way that wasn’t possible prior. Although some argue that they could simply download a JPEG image of an NFT and save it, this action would be akin to taking a picture of a painting and saying you now own that piece. You may be in possession of its likeness, but ownership and control of the actual asset is easily confirmed on the blockchain. Everyone can see it, but only one can own it.
Can you imagine if the Mona Lisa, subject to years of travel, trade and duplication, which some speculate isn’t actually the original painting, was an NFT? There would be no questions in that case.
Note: You should be aware of the risk in NFTs and cryptocurrencies, which are volatile and may lose some or all of their value. Nothing in this article is intended as advice, and you should consider seeking your own financial and taxation advice.
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