NFT Meaning - What are Non-Fungible Tokens?
NFT Hunter is uncovering the world of NFTs to the average member of the public. The space has been experiencing a growing number of followers since 2020 and is still at the early stages of it's technological potential and remains misunderstood or unknown by most people.
This article will cover three basic components of NFTs:
1. NFT Meaning
2. What is an NFT?
3. When were NFTs created?
1. NFT Meaning
NFT is an acronym that stands for Non-Fungible Token. It is a term used to describe digital assets that have an authentication marker stored on a blockchain to demonstrate their orginality.
NFT meaning has risen in popularity due to the growing market for NFTs but an exact definition or meaning has not been added to a dictionary (yet). However we can consider the meaning of NFT by the terms component parts.
The term is made up of three separate words; Non, Fungible and Token.
Non = An expression of negation or absence
Fungible = Replaceable with an identical item, good or service
Token = Visible or tangible representation of an item or good that can be exchanged
Taking the three words together, the meaning of NFT is an asset that cannot be replaced with a similar or identical asset i.e. it is an original and completely unique asset.
This originality authentication means that NFTs can hold different values and be traded in a monetary transaction.
2. What are Non-Fungible Tokens
Non-Fungible Tokens (NFTs) are units of data stored on a digital ledger (a blockchain) that can be exchanged between two parties. The cryptographic token cannot be replicated by anyone else making each token unique and therefore the tokens can be assigned value.
NFTs cannot be exchanged for one another unlike cryptocurrencies where a coin can be exchanged for another coin and their value is identical. NFTs are based on a smart contracting and the transfer of the contract can be free or be made in return for a monetary value agreed between the two parties (the buyer and the seller).
The internet and technology has allowed many businesses to scale far beyond their local markets and serve customers millions of miles away. Artists and creatives have experienced the same benefits in terms of reach but online copyrighting has been a constant challenge as the ability to copy artwork, music, photography etc. is incredibly simple and the copies are as good as the real version.
This is where NFTs provide value.
An artist can create a digital image and assign it an authentication signature on a blockchain. The token is unique and stored on a public ledger (database) meaning that everyone can verify information about the image such as when it was created, who created it, who has previously owned it and who currently owns it.
To create, sell or transfer an NFT there are five steps:
- The token is assigned to the asset or the sale of the asset is agreed between two parties digitally
- Transaction is bundled together with other transactions to form a 'block'
- Transaction is verified by 'miners' using cryptographic methods to confirm transfer of the contract
- Transaction is indexed on the public ledger authenticating the new owner of the token
- Buyer receives the token and their signature is visible on the public ledger
This process and digital authentication gives the buyer of the asset the confidence that they own the original because whilst the image can be copied the authentication marker on the blockchain cannot.
An example of where this has been used to create value for a digital asset that previously was worthless is Jack Dorsey's (the founder of Twitter) first tweet. He sold the copyright to the tweet, that was first made in 2006, for $2.9m on March 6th 2021. This was at the start of the huge growth in NFT purchases seen in the market.
Another example of where an asset has been successfully sold as an NFT was an art piece created by famous digital artist Mike "Beeple" Winkelmann. The piece was a collage of 5000 of Winkelmann's earlier artworksand was auctioned off for $69.3 million in March 2021. Previously none of Winkelmann's work had sold for more than $100 each and none were ever sold as originals but rather copies. NFTs enabled Winkelmann to sell his first original.
When were NFTs created? | History of NFTs
Non-fungible tokens only became popular around the year 2020, 6 years after the first NFT was created in 2014.
A timeline of NFTs history from 2014 to 2021 is pictured above and detailed below.
The first one-off NFT is created. A non-fungible, tradeable blockchain marker was linked to a piece of digital art.
3 months after the launch of the Ethereum blockchain the first NFT project, Etheria, was launched.
Larva Labs release CryptoPunks, a collection of 10,000 programmatically created cartoons. Now worth up to $12m each.
Nike patent ‘CryptoKicks’ a system that uses NFTs to authenticate a single pair of physical sneakers
NBA TopShot is launched, selling tokenized collectibles of NBA highlights to the public.
In the first 3 months of 2021 $200m was spent on NFTs by the public via multiple online marketplaces.
It is forecast that the market for NFTs will continue to grow during the 21st century as the technology is adopted by the creative industries that have struggled to capture much of the value of their work in the digital era. It is expected that artists, musicians, sport stars, authors, comedians and more will be able to publish their work or harness the value of their followings with NFTs.