What is NFT?

What is NFT?

In this chapter, we will briefly explain what NFTs are and explain how and why NFTs are popular. We will also give you a few practical examples for your reference.

What is NFT?

The NFT we often hear about has a predecessor, which is FT. First of all, let's explain the difference between the two. NFT means a Non-Fungible Token, and NF is a Fungible Token, so what is Fungible?

FT (Fungible Token)

A simple explanation is that NF is the cryptocurrency we have introduced, such as Bitcoin, Ethereum, etc. NF has two properties, substitutability, and divisibility.

1.Substitutability - NT value of the same kind is interchangeable, just like one bitcoin I hold and one bitcoin you have are the same in value and form, even if swapping each other doesn't matter.

2.Divisibility - Assuming that the current market value of 1 Bitcoin is about 40,000 US dollars, but often the amount of our single transaction will not reach this amount, we can spill cryptocurrencies into 0.005 Bitcoins for use like stocks. And after the FT is disassembled, its value and form are still the same and can be replaced with each other. So we can use only 0.005 bitcoin to complete the transaction and exchange small amounts when exchanging US dollars into bitcoins. 

NFT (Non-Fungible Token)

After understanding FT, it is straightforward to explain NFT. Non-fungible tokens mean that their characteristics are opposite to the above two points. For example, NFTs can neither be substituted for each other nor can they be cut for use.

1.Irreplaceability -  Each NFT is a unique token, and maybe their value can be converted by FT, but basically, every NFT is different; even if the price is the same, it is still different. For example, I hold a Michael Jordan player card NFT worth one bitcoin, and you hold a Kobe Bryant player card NFT worth one bitcoin. Although both are one bitcoin, they are entirely different tokens and cannot be interchanged at will.

2.Non-splitting - Since each NFT is unique, there is no such thing as splitting it into 0.005 NFTs because after one NFT is separated, two completely different NFTs will be formed. If a Kobe Bryant player card NFT is taken apart, it becomes two other cards.

Categories of NFT

NFT is built on the blockchain. Through the four characteristics introduced in the previous chapter, NFT can have the same features of immutability, decentralization, anonymity, transparency, and openness as cryptocurrencies. These features ensure that the ownership information recorded above is unique, safe, and reliable. Therefore, NFT can be applied to a wide range of levels, and we can divide it into three types.

1.Collection - This type of NFT includes pictures, paintings, player cards, music, etc. Since NFT can ensure its uniqueness, even digital assets can have extremely high collection value. For example, An internationally renowned painter has launched five limited-edition digital painting NFTs. After purchase, we can use the NFT data on the blockchain to prove that we are holding genuine NFTs, no matter how often this picture is copied on the Internet. We can always prove that only what we have is the genuine NFT.

2.Membership card type - This type of NFT is often used in conjunction with collections. People who hold NFT can participate in member-limited activities or get exclusive privileges by verifying the NFT. In this way, this series of NFTs is not only a collection but also has the function of a specific community membership card. Therefore, it may replace the existing membership card mechanism in the future, which is more convenient to manage and does not have to worry about counterfeiting identities and other issues.

3.Identity and asset certification - Since it is incredibly safe and secure to record data on the blockchain, it is natural for some people to save personal identity data, asset certification, and ownership certification on the blockchain in the form of NFT. On the one hand, there is no need to worry about theft and tampering. On the other hand, it is convenient to transfer the data for use through the blockchain network at any time.

Why has NFT become so hot?

It is people's nature to collect valuable things. When they can afford it, people always involuntarily collect items that can attract their passion, which may be celebrity peripheral goods, limited-edition sneakers, or beautiful art. The characteristics of these collections are all "limited" because they are limited and so precious. And when the blockchain technology makes the information and virtual assets that can be easily copied and spread in the past become "limited," their collection value appears. This is why NFTs are becoming more and more popular.

Many artists also began to get involved in this field after realizing that digital assets can generate collectible value. The most famous example is probably Beeple, the first digital artist in the world to sell NFT art at Christie's auction. The artworks created every day since the beginning of 2020 are aggregated into a large-scale art NFT creation, "THE FIRST 5000 DAYS", which will be sold for US$69 million on March 11, 2021.

For creators, the emergence of NFT solves the problem that works are easy to be pirated. Furthermore, after uploading the work to the blockchain to become NFT, through the blockchain record, buyers can see the details of the original work, transaction time, and past prices, and this information is reliable. These features have led to an efficient and fast free trading market, which is undoubtedly an excellent boon for creators.

In addition, NFT can also allow creators to continue to obtain benefits. In the past, creators' works were often a one-time transaction, and after they were sold, they could not transparently track the subsequent whereabouts of the works. And if the work is auctioned several times, the proceeds have nothing to do with the creator. However, the creator can track how many times the NFT of the work has been traded second-hand. Furthermore, a fixed percentage of the "copyright fee" can be extracted from the transaction each time through the smart contract setting, dramatically improving the creator's treatment. Now works can be sold without going through auction houses or intermediaries, and the continuous flow of all works in the future will bring them sustainable passive income.

I hope this chapter will give readers a better understanding of NFTs. The next chapter will discuss three basics about NFT.