Non-fungible tokens (NFTs) are digital assets. To paint a clearer picture, people purchase houses, cars, furniture, jewellery or machinery as tangible and physical assets. These physical assets have monetary value and can be sold or exchanged. In the same way, we have intangible assets that are the opposite of these physical assets. You cannot touch them with your hands, yet they are valuable and recognized.
NFTs are a form of intangible assets like popular bonds, stocks, patents etc. However, they are entirely different. Like cryptocurrency, NFTs are built on the blockchain, making them a unique form of virtual asset.
NFTs represent real-world objects like art, music, videos, and videos.
In more technical terms, NFTs are cryptographic assets on a blockchain with unique identification codes and metadata. As a result of these unique identification codes, no two NFTs are the same. This creates digital scarcity and allows NFTs to gain value. This feature of NFTs makes them an ideal vehicle for collectibles like digital artwork.
It is important to note that the subject of an NFT can already exist in some other form. For instance, many images sold as NFTs can be viewed and even downloaded for free online. So why do people spend so much on assets that are so easily accessible? To understand this, you must remember that collectors dominate NFT markets. Collectors often care more about the bragging rights of owning an item than the actual item. Since NFTs act as proof of ownership, they satisfy this desire. To illustrate, while almost anyone can view Jack Dorsey’s first tweet or even take a screenshot, only one person can say they own it.
All of this is made possible by the non-fungibility of NFTs. So, what does that mean?