A non-fungible token (NFT) is a unique and non-interchangeable unit of data stored on a digital ledger (blockchain).
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NFTs can be used to represent easily-reproducible items such as photos, videos, audio, and other types of digital files as unique items (analogous to a certificate of authenticity), and use blockchain technology to establish a verified and public proof of ownership.
Copies of the original file are not restricted to the owner of the NFT, and can be copied and shared like any file. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin.
The first NFT project was launched in 2015 on the Ethereum blockchain, and interest grew with the rise of interest in crypto currencies. According to NonFungible.com, sales exceeded $2 billion in the first quarter of 2021, more than 20 times the volume of the previous quarter. NFTs have drawn criticism with respect to the energy cost and carbon footprint associated with validating blockchain transactions.
An NFT is a unit of data stored on a digital ledger, called a blockchain, which can be sold and traded. The NFT can be associated with a particular digital or physical asset (such as a file or a physical object) and a license to use the asset for a specified purpose. NFTs (and the associated license to use, copy or display the underlying asset) can be traded and sold on digital markets.
NFTs function like cryptographic tokens, but, unlike cryptocurrencies like Bitcoin, NFTs are not mutually interchangeable, hence not fungible. While all bitcoins are equal, each NFT may represent a different underlying asset and thus have a different value. NFTs are created when blockchains string records of cryptographic hash, a set of characters identifying a set of data, onto previous records therefore creating a chain of identifiable data blocks. This cryptographic transaction process ensures the authentication of each digital file by providing a digital signature that is used to track NFT ownership. However, data links that point to details like where the art is stored can die.
The unique identity and ownership of an NFT is verifiable via the blockchain ledger. Ownership of the NFT is often associated with a license to use the underlying digital asset, but generally does not confer copyright to the buyer: some agreements only grant a license for personal, non-commercial use, while other licenses also allow commercial use of the underlying digital asset.
Digital art was an early use case for NFTs, because of the ability of blockchain technology to assure the unique signature and ownership of NFTs.The digital artwork entitled “Everydays – The First 5000 Days”, by artist Mike Winkelmann, also known as Beeple, sold for US$69.3 million in 2021. The purchase resulted in the third-highest auction price achieved for a living artist, after Jeff Koons and David Hockney, respectively. Another Beeple piece entitled “Crossroad”, consisting of a 10-second video showing animated pedestrians walking past a figure of Donald J. Trump, sold for US$6.6 million at Nifty Gateway, an online cryptocurrency marketplace for digital art.
A 3D-rendered model of a home named “Mars House”, created by artist Krista Kim, was sold as a piece of digital real estate on the NFT market for over US$500,000.
Erwin Wurm released a NFT as one of the first already internationally renowned artist in August 2021. The work “Breathe In, Breathe Out” was released by Berlin-based König gallery‘s website MISA 20 years after Wurm’s first Fat Car. The sequence shows a loop of a seemingly breathing Porsche 911.
NFTs can represent digital collectibles like physical card collections, however in a completely digital format. In February 2021, a LeBron James slam dunk NFT card on the NBA Top Shot platform sold for $208,000.
Tickets, for any type of event, have been suggested as a use case for NFTs. One such use case is the possibility for artists to receive royalties on resales. Another one would be a more intimate relationship between fans and artists.
NFTs can also be used to represent in-game assets, such as digital plots of land, which are controlled by the user instead of the game developer. NFTs allow assets to be traded on third-party marketplaces without permission from the game developer.
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What You Need To Know About Non-Fungible Tokens (NFTs)