What Are Non-Fungible Tokens (NFTs)?

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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