What are NFTs
1: Fungibility
Before we begin, we must first describe the difference between something that is fungible and non-fungible. Something that is fungible is directly replaceable because it is not inherently unique. For example, a dollar is something that is fungible. Each dollar can be replaced with another dollar and the function and worth of that dollar remains static. On the other hand, something that is non-fungible is unique and non-replaceable on an 1 to 1 basis. For example, the Mona Lisa is non-fungible. No matter how many impeccable copies are made of Leonardo’s painting, they will never replace the original.
2: Tokenization
At this stage we also need to quickly discuss tokenization and digital tokenization. Tokenization is the creation of a representative reference of one object by another. Tokenization has been used by humans since the dawn of intelligence. We have used beads, sticks and other objects to represent numbers or groups of numbers. This concept is exactly the same in blockchain. A digital token is just a piece of code that represents “something” else.
3: NFTs
This takes us to the question of NFTs. NFTs are non-fungible tokens. An NFT is a unique digital reference to “something”. This “something” can be anything that is quantifiable. For all intents and purposes an NFT is a certificate of authenticity and ownership of something. From a technical perspective an NFT is a smart contract which once uploaded to a blockchain becomes an immutable reference to “something”. The smart contract itself can be a simple container for a description and a link to an image, a tokenized membership to a private club, or a container for complex commercial contract logic in reference to a lending policy.
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