NFT Meaning: Here’s What You Need To Know About Non-Fungible Tokens

NFT Meaning: Here’s What You Need To Know About Non-Fungible Tokens

Britanny Burr Blog

NFTs have been the talk of the town for quite some time now. While the general public is gaining a loose concept of them as they push through into the mainstream, the actual NFT meaning remains a pretty big question mark for a whole bunch of people. If you’re one of those people, don’t you fret. 

We’re living in a wonderfully weird world. Every day, many of us utilize a bunch of things that we don’t fully understand. Wifi? The Cloud? The INTERNET? Because we’re so familiar with how these things integrate into our lives and how we use them, we don’t have too many questions about the technology behind them. With NFTs, however, they’re a new concept for a lot of us so we’re trying to wrap our heads around them! 

So, if you’re on an NFT learning journey and you want someone to walk you through everything you need to know to develop a high and low-level understanding, you have come to the right place. Let’s start with the obvious: NFT Meaning.

NFT Meaning: What Does it Mean!? 

NFT stands for non-fungible token. That covers it, right? Just kidding, we know that’s equally as unclear as the acronym. “Non-fungible” simply means that it can’t be copied or replaced; it’s unique. If something is “fungible,” this means that it can be easily interchanged with another good or asset. This isn’t the case for NFTs. For example, you could trade a single US dollar for another US dollar, while the dollar itself is different, you have the same thing. Therefore, a dollar is fungible. A one-of-a-kind piece of art, on the other hand, is non-fungible because you can trade it for something of similar value or nature, but you’d have something different. NFTs are the same, only digital! 

So, an NFT is a digital representation of things like art, music, videos, photos, etc. These pieces of digital art are bought and sold digitally on a blockchain and most often paid for with cryptocurrency

Now, this all might sound a little bit confusing (because it is), but in the simplest terms, an NFT is a piece of unique digital art. They are often one-of-a-kind, but some artists might release a limited run, though each would have its identifying code, making it unique in that way, instead. Not to worry, we wouldn’t leave you hanging there. This lesson isn’t even close to finished. 

How Do NFTs Work?

To understand how NFTs work, you’ll need a basic understanding of cryptocurrency and blockchain technology. A blockchain is a public ledger system that records transactions. Blockchain is the technology behind cryptocurrency because crypto transactions all take place on blockchains and records of those transactions are kept forever on the blockchain, as well. Not only is crypto bought, sold, and traded using blockchain technology, but this is also where new crypto is made through a process called mining. We won’t get into all of that right now. 

Cryptocurrency is digital currency and blockchain technology is where it lives and where transactions are done. You can’t have crypto without blockchain. In the same way, you can’t have NFTs without blockchain. NFTs are hosted on blockchain technology and they are bought and sold there using cryptocurrency.

NFTs are digital assets (or collector’s items) that are the same thing as physical, real-life collectibles apart from the fact that they are digital and therefore bought with digital currency instead of cold, hard cash. 

If you’re having trouble picturing an NFT, that’s because they are all so different, just like art. You could be looking at a digital drawing, a photograph, an animated video, a 3D rendering, a song, and – honestly – anything you can imagine in digital form. 

Still with us? Great.

What Makes an NFT Valuable? 

Now that you’ve got an idea of what the heck an NFT is by definition, you might be wondering why people are paying money for these things. When we say money, we are talking about some serious money. The most expensive NFT to ever sell has a $91.0 million price tag. Many others have been sold for tens of millions of dollars, too. This doesn’t mean that every person who puts an NFT out there will walk away with a fat stack of cash, but it certainly shows that they can be deemed very valuable to prospective collectors. 

If you’re trying to figure out why a piece of digital art is worth anything at all, you may want to ask yourself why physical art has value? Just the same as physical art, some NFTs take a ton of time, talent, and experience to create whereas others can be slapped together in a few minutes. Just like with physical artists, sometimes people value the art simply please of the signature it comes with. When we look at art, the value (and beauty) is in the eye of the beholder. The artist is free to add the price tag, but the demand and success of the piece are up to the world it exists within. 

In a less abstract sense, NFTs are often considered valuable because of their scarcity. There is very little that exists online that cannot be replicated, but these are unique and only officially the property of the maker or the buyer once sold. 

NFTs have value because they verify the authenticity of someone’s asset. It’s a new form of ownership, a new type of asset, and an exciting avenue for investors, collectors, and artists alike. Now, we bet we can guess what your next question is:

But Can’t I Just Screenshot it? 

Yes! You can screenshot someone else’s NFT, you can make it your phone’s background and print it out and hang it on your wall if you want. The thing is, it’s not yours. You could take a picture of the Mona Lisa, but that doesn’t mean it’s yours. If someone owns an NFT and people are blasting it all over the internet, it might even make their asset more valuable. At the end of the day, the proof of ownership is public on the blockchain and the distribution of copies doesn’t impact the real deal.

Every collector is different, someone might not like their asset being screenshotted and shared. Regardless, the value lies with the owner and you can screenshot your heart out. 

What Are NFTs Used For?

This question is two-fold because the use of NFTs for an artist and the use of NFTs for a collector is different but equally important. An artist can use NFTs to monetize their creations without having to use a middle-man who will undoubtedly take a cut. For example, galleries, music streaming platforms, ticketing companies, and entities like these tend to take a huge cut of an artist’s earnings. NFTs allows artists to get their stuff right in front of their audience and directly into their hands without any additional steps, red tape, or financial loss. This also gives them full control over their pricing and other aspects of their work that they may not have had say over in the past. 

Beyond that, artists can choose to collect royalties from their NFTs if they are re-sold in the future. 

As for the buyer, NFTs are used just like physical collector’s items or art: they are owned, looked at, enjoyed, and kept or sold to make a profit down the road. 

Are NFTs A Good Investment?

This is an important time to make the distinction between the art itself and the NFT. When a digital asset is tokenized into an NFT (also known as being “minted”), you’ll still want to consider the value of the asset itself rather than just the fact that it’s an NFT. The minting process has made it secure, scarce, and trackable via blockchain technology, but it hasn’t changed the asset itself. Therefore, look at the asset behind the NFT when assigning value to it. 

Now, as for if NFTs are a good investment, this is a subjective question and you will get different answers based on who you are talking to. We’re not here to give investment advice, but we will walk you through some pros and cons.

The Cons 

Investing in NFTs has some of the same drawbacks as investing in cryptocurrency as you will often need to invest in some cryptocurrency to buy NFTs. Crypto is notoriously volatile and unpredictable and the entire market can change based on something as whimsical as a Tweet from Elon Musk. In addition, we can’t know if NFTs have staying power in terms of perceived value. They have been around since about 2017 and only gained widespread notoriety just recently. So, the future isn’t exactly clear just yet. As is also the case with crypto, NFTs are mainly hosted on the Ethereum blockchain, one of the many blockchains that are known for their carbon footprint. Transactions and actions on blockchains like Ethereum take up a whole lot of energy and, in turn, aren’t so great for mama nature. 

Another downside to NFTs is that there is a general discomfort and disvaluing of digital art and digital currency among those who aren’t in the space. As such, they may never gain as much widespread approval as other non-tech, tangible, real-life forms of art and assets. 

It is also worth mentioning that users can mint and sell NFTs on their own without a third-party marketplace. Though, many users choose to lean on a marketplace to get more exposure and facilitate the minting process. These third parties do some with some fees attached. 

The Pros 

Now for the pros! NFTs are cool and people are interested! They are creating a ton of buzz and it could be a really exciting thing to have some skin in the digital asset investing game. It’s a really neat space filled with passionate, brilliant people, and it’s an energizing time to be involved. Also, lacking intrinsic value means that you can ascribe value to things however you wish, so that could work to your benefit as a collector or trader. These assets are also super secure thanks to blockchain technology and these types of transactions give you a peek into the extremely exciting future of blockchain technology and Web3.

So, deciding if NFTs are a good investment for you has a lot to do with where your values, interests, and plans for the future lie. 

If you’re curious about how you make an NFT, how you buy an NFT, or anything else about NFTs, STAY TUNED! We’re here to guide you through this wild ride and we want to hear your questions along the way. Ask us anything…we mean it.