NFT 101

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Pocketful of Quarters

1/6/2023

NFTBlockchain

NFTs are one of the most common topics brought up when talking about blockchain technology. Digital collectibles, domain names, and in-game items are all examples of uses of this technology. Although many have certainly heard of NFTs and have somewhat of an idea of what they are, there are some common misconceptions and misunderstandings about how they work and what they actually do.

Fungible vs Non-Fungible

The basic breakdown of what an NFT is is really quite simple. It’s right there in the name: Non-Fungible. First, let’s take a look at what it means for an item to be fungible. Fungible items are non-unique, interchangeable items that can be split into smaller units to form the same value. For example, a $100 bill is a fungible token as there are thousands in circulation and it can be exchanged for five $20 bills, two $50 bills, etc.

With this understanding, it’s easy to see the true nature of an NFT is the ownership and representation of one unique asset. When an NFT is used to declare ownership of a digital asset, whether it is a piece of art, a concert ticket, or a laser gun in a Web3 first-person shooter, this asset becomes unique. Any copies, even an exact replica, become worthless, because they are not the original indicated by the NFT’s unique digital signature on the blockchain.

The Case, not the Art

The most common misconception about NFTs is that they are themselves, a digital asset. It’s easy to see why this is so frequently misunderstood and misstated by the public. During the NFT boom of mid 2021, various “crypto-bros” would often brag about their new Bored Ape NFT and promptly post a picture of their new digital asset. The wording of these thousands of tweets makes it seem as though the NFT is what holds value, when in fact it is the digital asset that the NFT protects.

A CLEAR PLASTIC BOX

Tim Tello, COO

While the validity of Bored Apes and other NFT projects are certainly questionable, the root technology they employ is much more viable than the rudimentary digital art they keep secure. Tello described this relationship as essentially being, “a clear plastic box you set an item inside of.” The most fundamental misconception of Non-Fungible Tokens is the belief that they are the digital Mona Lisa and Last Supper when truthfully, they are the bulletproof cases protecting them.

Disclaimer

We are not financial advisors. The content on this website, our Social Media pages, or our YouTube videos are for educational purposes only and merely cite our own personal opinions. In order to make the best financial decision that suits your own needs, you must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. Always remember to make smart decisions and do your own research!