What is NFT? How does it work?

NFT seems like a trend recently, I am very interested to know more, can someone explain in a nutshell?

Paul Williams

5 Jan, 2022

1 Answer

Vrisha Phrabhakaran

Partnerships & Content Coordinator

Hi William,

So an NFT is a non-fungible token. Generally, it can be defined as a unique/one of a kind digital asset. It uses similar technologies to cryptocurrencies but cryptocurrencies are fungible and tradable. 

For example, if you hold 1BTC it would have the same value and liquidity as the 1BTC I have. Non-Fungible isn't as exchangeable as they are all unique. A piece of NFT you may hold is not the same in value as the NFT I may have. Moreover, you cant make copies of the same NFT. 

NFT's are pretty commonly used for art these days and it makes for a good example of how it works. Let's use the Mona Lisa for example, yes you could make a replica painting of the Mona Lisa but since it's well known that it was painted by Leonardo da Vinci and that it's exhibited in the Louvre. Because it is clear who the owner is and where the original copy can be found, the copy will have little to no value in comparison to the original. 

This is the current use of NFT's, It provides a clear authentication through blockchain technology of who the owner and seller/artist is. Therefore, the owner can retain the value of the original artwork even if the work is copied.

NFT mostly resides on the Ethereum blockchain network because it comes with a smart contract and publicly verifiable metadata. These capabilities of the Ethereum network makes it convenient to show you own a digital asset. Furthermore, because of how the blockchain works, there can only be one distinct owner and if it is sold to someone else the history of the transaction and change of ownership will also be recorded. 

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