DIGITAL ASSET GLOSSARY

Non-fungible token (NFT)

Non-fungible tokens, or NFTs, are a type of cryptographic token — a digital representation of value that lives on the blockchain.
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April 9, 2021

Non-fungible tokens, or NFTs, are a type of cryptographic token — a digital representation of value that lives on the blockchain.

NFTs can represent the value of physical assets. A painting, for instance. But they can also represent the value of digital assets, such as a short story that is only available online.

NFTs have three characteristics that set them apart from other types of token:

1.   They’re unique

Every single NFT represents a specific asset. This means there’s no standard value. So, unlike other types of cryptographic token, NFTs aren’t directly interchangeable.

Even where several NFTs are similar — for example, a limited run of the same art print, or a batch of tickets for the same event — each NFT is treated as a unique asset and tracked on the blockchain separately.

2.   They’re verifiable

NFTs can’t be copied. It’s also very easy to prove their authenticity. This is because their full history is recorded on the blockchain, so anyone can check it.

3.   They’re tradeable

While NFTs aren’t directly interchangeable — you can’t swap one NFT for another as you would Bitcoin, for instance — there are specialised exchanges where you can buy, sell, and resell them.

You can settle the transaction in fiat currency or in cryptocurrency.

NFTs’ characteristics make them especially well-suited for protecting intellectual property rights.

Creatives can use NFTs to monetise their work while staying in control of who can use and reproduce it.

Similarly, selling tickets as NFTs has been touted as a solution to scalping — the practice of buying large numbers of tickets for sought after events and reselling them at a high markup.

 

Some facts

NFTs exploded in early 2021, reaching $389 million in sales. But they’ve been around since at least 2012, when Bitcoin Coloured Coins started being traded. These were satoshis — fractions of a Bitcoin — that were marked, or coloured, with information that linked them to real-world assets.

Bitcoin Coloured Coins were primarily used to trade ‘Rare Pepe’ digital cards — artwork of Pepe the Frog. At the time, Pepe the Frog was a popular meme. It would eventually be appropriated by and become synonymous with white nationalist groups and the alt right.

Pepe’s creator Mark Furie “killed” Pepe in 2017 to protest its continued use as a hate symbol.

Nowadays, most NFTs are created and traded on the Ethereum blockchain. One of the first Ethereum-based NFTs was a game called CryptoKitties, in which users could sell virtual kittens.

In 2018, an anonymous user bought a CryptoKitty called Dragon for 600 Ether. At the time, this was equivalent to $172,000.

 

Want to know more?

  • NFTs became technically possible on the Ethereum blockchain thanks to ERC-721, which was proposed by William Entriken, Dieter Shirley, Jacob Evans, and Nastassia Sachs in 2018. The authors had a wide range of use cases in mind, including real estate transactions and trading ‘negative value assets’ like loans.
  • Want to dip your toes into the NFT game? This article walks you through the process of creating, selling, and trading them.

 

The Metaco view

Far from being a fad, NFTs are another step towards the digitalization of everything. At some point, the explosion of NFTs means banks will be facing the same threats the post office faced with the rise of the internet, so they’ll need to adapt and rethink their role in the value chain.

 

Digital asset glossary

The A-to-Z of Digital Assets
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