An NFT is a digital record, like a receipt, proving ownership of something (either physical or digital) such as a collectable item, like the pixelated drawing on a Punk Alien.
It is a record of when the item was created – or minted to use NFTs unique terminology – how much was paid for it, including previous sales – as an NFT can be exchanged/traded on NFT marketplaces – and details of any specific attributes.
At this point you might be thinking – so what? What’s the difference between the Punk Alien and any digital image, such as the one at the top of this article, that can be traced to a server located somewhere on the internet?
What is different about NFTs is the way they are created, and the qualities this gives them.
Minting an NFT, means creating a new record on a decentralised blockchain, in the case of Crypto Punks this is Ethereum, but NFTs can be minted on other blockchains.
One of the fundamental qualities of a decentralised blockchain is that the data they hold is immutable; in other words, it cannot be changed. No one can amend the information associated with an NFT, it is a unique unchangeable record.
In comparison to tokens that are intended to be fungible, and exchangeable for items with identical characteristics, non-fungible tokens are designed so that they cannot simply be duplicated and exchanged for an identical item. NFTs reflect ownership of a unique item, as recorded by a blockchain, for which there isn’t an interchangeable equivalent.
There is an agreed programming standard on Ethereum called ERC-721 – emulated by other blockchains – that sets out the parameters to ensure a record is non-fungible, just as there is a standard for fungible tokens – ERC-20.
It is important to distinguish the record from the image, as an NFT doesn’t necessarily represent the item itself. Images can be stored on a blockchain, but an NFT might simply indicate where the item exists, such as the URL of a piece of digital art, photo or the location of a physical asset. This is the same with analogue receipts or certificates of authenticity that prove ownership and provenance of physical collectables – like an autographed album.
The appeal of NFTs is that they are early examples of a revolutionary new technology that is likely to become hugely significant, while at the same time encapsulating the cultural phenomenon that surrounds that technology in artistic form.
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