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Hello there! My name is Ivan Markov, and I’m here to share some knowledge with you all regarding a topic I’m very passionate about. If you have never heard about NFTs, or you heard about the term but you don’t understand it completely, this short guide through the NFT basics is for you.
This will be the first of several articles about this subject. We will take it slowly, step by step, and by the end of the series, you will know your stuff! So – let’s go! 🙂
First things first: NFT stands for non-fungible token.
I see you already asking: “What exactly do we mean by a token? What makes a token nonfungible?”
For an asset to be considered fungible it must be identical to all other assets of its type, and it must be interchangeable with any of those assets.
Alternatively, nonfungible essentially means that an asset is unique.
Examples of fungible assets:
Examples of nonfungible assets:
You have probably heard the expression “a token of our appreciation” at some point in your life. Appreciation is a state of mind, not a physical object. A “token of appreciation” is a physical gift that represents one’s appreciation.
The token is not exactly the appreciation.
Another example of a token known to everyone is a video arcade token. The token represents a certain amount of money. However, it’s not actual money and you can’t use it to pay for coffee or a bus ticket.
This particular token can get you a certain amount of time playing a video game at the arcade. To spend the token outside of the video arcade, you would need to convert it back to actual money you can use.
While these are common examples of tokens, there’s a better example to help illustrate the concept of an NFT, but it’s not something we would normally think of as a token.
An NFT is very comparable to a deed to a piece of land.
Of course, the deed is not actually the land. A deed is a contract that lays out the details of the land such as its location, size, zoning, etc. All the information on the deed is stored in a database. You can look up the deed in the database and see all the details, including the name and address of the owner.
When the property is sold, since it’s not something that can be held and carried away, it’s not the land that actually changes hands. The deed changes hands. For the property owner, the deed acts as proof of ownership. When a property is sold, the deed is used to spell out the terms of the transfer of ownership.
So, in a sense, a property deed is a nonfungible token.
You cannot just trade a deed you have for any piece of property anywhere in the world. It only represents one particular piece of property.
Now, let’s imagine that you create 100 copies of a work of art. You number each copy and sell them all for the same price. Here’s what happens: as soon as each item is transferred to a new owner, the value of each copy begins to diverge from the others.
Each new owner gets to decide what it’s worth to them.
They’re not interchangeable. Just because someone makes an offer on one work of art, doesn’t mean they’ll buy any other work of art at that same price.
Imagine that you create a corresponding numbered certificate of authenticity for each copy. The certificate is like a token – not the actual work of art. However, without the certificate, the authenticity and ownership of the copy can’t be proven.
This is the essence of an NFT.
As with a piece of property, the information related to the work of art and the owner’s address is stored in a decentralized database called a blockchain. When the NFT is sold, the address in the database is updated from the seller’s wallet address to the buyer’s wallet address.
See – it is actually just that easy to understand the basics of NFTs! 😀
I hope this clears things up a bit for everyone who was struggling with understanding NFTs. Now that we covered these NFT basics, in our next article, we will talk about the concept of databases and blockchain.
So stay tuned! 🙂