Ready to go on a shopping spree?  You can buy a plot of land, some designer clothing, and to top if off, a diamond encrusted tiara- without ever leaving home; though you WILL have to leave reality. You can make all these purchases within a virtual world using NFTs.

What is an NFT-A Non-Fungible Token?

Let’s start with the definition of the terms fungible, non-fungible, and token.  

When something is fungible, it is replaceable with something else of equal value. Currency is fungible. For instance, a $10 bill is fungible because it can easily be replaced with another $10 bill. Bitcoin is also fungible because you can exchange one Bitcoin for another-they have the same value.  

 In contrast, when something is unique and non-replaceable it is non-fungible. For example, let’s say you and I own the same dog breed- a cute and fluffy bernese. Though they are the same breed and look alike, they are unique. If we trade dogs, we are not exchanging like for like since my dog's personality and manner is different from yours. Real estate, used cars, and collectibles, are also examples of non-fungible assets.  

 What is a token? The word ‘token’ brings up memories of visits to Chucky Cheese. At Chucky Cheese you earned tokens that could be exchanged for a prize. Unlike Chucky Cheese where you exchange your token for something valuable, in the world of crypto, your token represents ownership of an asset. Your token, your NFT, is a code recorded on the blockchain that certifies your right to a digital or physical item. The token itself doesn’t have value but the asset it represents does. For example, a token can represent digital art, a concert ticket, a gaming item, virtual property in a virtual world, or even a tangible asset like a deed or title to actual land in the physical world.  Each token is unique thus making it non-fungible.  

So an NFT is a code stored on a blockchain that represents a unique asset and certifies the owner’s right to the asset.  

 What gives NFTs their value?

In learning about NFTs, I ran across the word, provenance.  Provenance refers to an item's origin. In the NFT world provenance refers to the story behind the creation of the NFT and the more unique the story, the more valuable it is. For instance, Jack Dorsey was able to sell a tweet for 2.9 million dollars because it was the FIRST tweet he ever sent-a very unique origin story. Another way NFTs gain value is when celebrities or well-known names buy them. Such is the case with the NFTs CryptoPunks and The Bored Ape Yacht Club. These NFTs are a unique collection of digital art and when you own a Bored Ape or CryptoPunk, you become part of a unique club of people, and who doesn’t want be part of an exclusive club?!? (wink)

Application for NFTs

NFTs are taking the virtual and gaming world by storm. The most recognized virtual world today is called Decentraland. In Decentraland NFTs are used to buy land, build homes, and create avatars. But be ready to spend a lot. As of November 2021, a plot of land in Decentraland cost $15.53 million US dollars! According to the WSJ, “the world’s biggest luxury brands are dipping their toes into the world of digital fashion.” As long as buyers can claim that their luxury digital NFT is rare and authentic, they will pay high prices.

As wild as these examples are, I believe NFTs will become more mainstream.  As the blockchain technology becomes faster and simpler to use we could see NFTs created to represent our identities such as our driver’s license or passport, or represent real estate transactions.  NFTs will give content creators, such as musicians and artists, a direct way to sell their content to the public without a middle person taking a cut.

Challenges of NFTS

There are challenges to the NFT market. NFTs are difficult to create, and it may take some time watching a YouTube video to learn how to buy an NFT!  They are volatile.  An NFT that is created and then hyped, causing a rush of buyers worried about FOMO, can quickly lose the hype, and become worthless. It is also hard to determine the price of an NFT. In the decentralized finance world, NFTs are being used as collateral. However, the subjectivity of NFT values can cause problems for lenders and borrowers alike. In addition, many NFT projects may lack long-term users. Who knows how long people will hang out in Decentraland? Another virtual world could become much cooler tomorrow!  

If you are interested in checking out the NFT marketplace visit  Opensea.io.  Just a visit to the website is quite an eyeopener!