At this stage of my life, I thought I had seen, heard of and experienced almost everything the investing world had to offer.
NOT SO, for along comes the rather strange sounding term, nonfungible token or NFT. More commonly referred to as digital or crypto-art, NFTs have been around since 2014 though here in 2021 they have gained widespread notoriety as the “new” way to buy and sell digital artwork.
NFTs turn digital assets into one-of-a-kind assets by creating a unique digital signature which defines the ownership of the digital asset and allows for the smooth and safe transfer of tokens between owners. An NFT is created or minted from digital objects that represent both tangible and nontangible items.
As defined, a nonfungible token “is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable.” This certification gives digital assets like collectibles (games, art, music, photos, sports memorabilia and multi-media to name just a few) a unique, trustworthy and easily transferable identity. One of the oddest examples of recent NFTs is digital sneakers!
Think of the blockchain as a ledger or spreadsheet that is duplicated many times across a network of computers. This ledger can be used to record not only financial transactions (as with cryptocurrencies), but virtually anything of value (examples include file storage, identity management, land ownership records and now even art).
Information held on a blockchain exists as a shared and continually reconciled database that is not stored at any single location. The underlying technology and programming languages used in creating NFTs are the same as those used by cryptocurrencies. It is important to understand that blockchain is the technology (or cryptographic standard) for the digital ledger and NFTs and cryptocurrencies are simply two different implementations or uses of it.
This is starting to make sense. While a fungible item can replace or be replaced by another identical item, a non-fungible item is distinctly unique and cannot replaced or substituted for.
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