NFTs have seen rapid growth over the past year, accruing a total net worth of $22 billion by the end of last year.
NFT stands for non-fungible token. Fungible means interchangeable, something like a dollar, an object with finite worth at a given time. All dollars are worth the same and there are billions of copies of them. If two people exchange two twenty-dollar bills they are undergoing a fungible transaction; neither of them is at risk of losing anything.
NFTs, on the other hand, are all unique.
Think about it like artwork; there aren’t two copies of the “Mona Lisa”. If two people exchange the “Mona Lisa” and a third-grader’s drawing of a turkey, odds are that somebody is losing value and somebody is gaining value. To take it further, if somebody purchased the “Mona Lisa” for twenty dollars the seller would be losing a considerable amount of money.
NFTs offer a similar experience, with consumers purchasing ownership of digital art without even receiving a real-life version of it.
Things get weirder.
Even though somebody may own an NFT, usually, other people can still download a copy of it for free. Because of this, NFTs can be seen as merely digital bragging rights. So why have they become so lucrative?
The whole purpose of NFTs is to distinguish the value of something while protecting the ability for it to have individual ownership.
If an artist posts a drawing of a cat and a hundred people download it, then one-hundred and one people have a copy of the drawing, but nobody owns it. If the artist turns the drawing into an NFT, however, he is verifying the drawing as an original.
NFTs are stored on a blockchain, which allows for the ownership to be verifiable as blockchain is publicly accessible. The artist can then claim the drawing as his or her own and sells the rights for it. This is where NFTs really resemble art, as their value is entirely dependent on what people place on it.
NFTs will continue to grow in prevalence and scope; their potential has not been made yet. While their relevancy today may be seen as a fad, I suspect their profitable nature will amass considerable staying power.
