Non-fungible tokens or NFTs are unique digital assets that are based on blockchain technology. Anything can become an NFT—a piece of art, sports memorabilia, or even a tweet. Unlike cryptocurrencies that also use the blockchain network for ownership verification, one NFT cannot be directly exchanged with another NFT.
NFTs have
existed, in some form, for several years but gained a level of traction in
2020. According to research by NonFungible.com and L’Atelier BNP Paribas, in
2020, the total volume of NFTs traded in the U.S. was $250.85 million, up
almost 300% from $62.86 million in 2019.
Definition and Examples of
Non-Fungible Tokens (NFT)
NFTs are
tokens offering ownership of digital assets. This ownership is then verified
through algorithms on the blockchain. Most NFTs use the Ethereum network for
verification.
Some trace
the origins of NFTs back to tokens called Colored Coins in 2012. Colored coins
were essentially bitcoins that were “colored” to give them special properties
to distinguish them from the rest of bitcoins and had value independent of the
face value of the underlying Bitcoin.
From there
they evolved to Crypto Punks, digitally generated characters, and the first NFT
on the Ethereum network in 2017. But NFTs became popular a little later in 2017
with the advent of Cryptokitties, a digital gaming platform on the Ethereum network
that allowed buying, selling, and breeding of digital cats. The craze caught on
soon enough and in 2018, a Cryptokitty sold for 600 Ethereum—the equivalent of
$170,500.
How Do Non-Fungible Tokens Work?
You can
think of a non-fungible token as the proof of ownership of an asset that is
verified by the blockchain. Blockchain is like an electronic ledger of
transactions that serves as a record of NFT ownership. Every transaction on the
blockchain is verified by computers across the world by solving complicated
math problems.
This makes
NFTs useful in several industries, and some have already begun to see their
adoption.
Notable NFT Transactions
It seems
like a new NFT pops up every day. In February 2021, a highlight clip of a
memorable dunk by NBA star LeBron James sold for $208,000. The band Kings of
Leon released an album in NFT format in March 2021. The types of assets that
can be digitized as an NFT seem limited only by what the minds of creatives and
businesses can think of.
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