- NFT stands for Non-Fungible Token
- NFTs are digital assets that represent ownership of a unique item including art, music, videos, game items, or even tweets
- Non fungible tokens have numerous use cases across various domains
- CryptoPunks and BAYC (Bored Ape Yacht Club) are some of the most popular in the sphere
You’ve probably heard the term NFT many times but have you stopped to think about what it actually is and how you can use NFTs correctly? In that case, you have come to the right place.
What are Tokens?
To put it in the simplest terms, a token serves as a tangible representation of a fact or quality and can be of any value on a blockchain.
Tokens are usually created on blockchains that support smart contracts, like Ethereum, Binance Smart Chain, Solana, or Polkadot. Ethereum is the most popular due to its robust smart contract functionality and standards like ERC-20 or ERC-721 (we will get to this later on this article.
They can serve a wide range of purposes and hold varying degrees of worth depending on their use case. For example, Sandbox (SAND) and Render Token (RENDER) are utility tokens used to pay services in their respective eco system.
Meanwhile, UNI (Uniswap) and AAVE are governance tokens that allow holders to vote on protocol changes.
Whether it’s granting access, enabling transactions, or offering voting power, tokens are foundational to how blockchain ecosystems function.
What is the Difference between Fungibility and Non Fungibility?
Prior to understanding NFTs it is important to learn the difference between Fungibility and Non Fungibility.
Fungibility means something can be swapped or exchanged for something else of the same kind. For example, $50 notes are interchangeable with other $50 notes. Similarly, one Bitcoin value can be exchanged with another Bitcoin, which makes no difference for holders.
Non fungibility on the other hand, means something that cannot be replaced or exchanged due to its unique nature. Think of the Mona Lisa painting which cannot be exchanged against any other regular painting. In that sense, non fungible tokens represent unique, collectable items.
What are the Special Characteristics of Non Fungible Tokens?
Non Fungible Tokens come with their own set of unique characteristics.
Uniqueness
Each NFT has a unique identifier and metadata that distinguishes it from any other token. For instance, No two CryptoPunks are exactly alike, nor are any two Bored Apes.
Scarcity & Authenticity
Creators of NFTs can limit the number of copies (e.g., 1-of-1 or a limited series), creating digital scarcity. NFTs often come with verifiable histories and authenticity guarantees.
Global Accessibility
Anyone with an internet connection and a crypto wallet can create, buy, or sell NFTs, removing traditional gatekeepers in industries like art, music, and gaming.
Interoperability
NFTs can be used across multiple platforms or applications that support the same standards (like ERC-721 or ERC-1155).
For instance, an NFT bought in OpenSea can be used in games like Decentraland or displayed in a virtual gallery.
Non divisibility
While Fungible Tokens are divisible into smaller units, NFTs cannot be directly divided into smaller units like cryptocurrencies like BTC. Each NFT essentially represents a whole, unique digital asset, such as art, music, or collectibles.
Royalties Fees
NFTs are able to provide artists with ongoing revenue, through their programmable royalty mechanisms, allowing creators to earn a percentage (e.g., 5–20%) of the sale price each time their NFT is resold on secondary markets.
Special technical standards
The first blockchain to come up with NFTs was Ethereum. It was originally using the ERC-20 standard. However, since there were many technical difficulties, ERC-721 was given birth to by Lava Labs. This then became the normal standard for NFT’s on Ethereum.
ERC-1155 followed suit with a newer standard that supports both NFTs and semi-fungible tokens (more on that below), making it more efficient for games and collections.
In which Domains are NFTs used?
NFTs are used in all kinds of creative and tech spaces:
- Art: Digital paintings and animations.
- Gaming: In-game items, skins, and weapons.
- Music: Exclusive tracks and albums.
- Collectibles: Trading cards, avatars.
- Real Estate (Virtual): Land in metaverse platforms.
- Fashion: Wearable NFTs for digital avatars.
What Formats Do NFTs Use?
NFTs can come in many file formats like:
- JPG/PNG – for images
- MP4 – for videos
- MP3 – for audio/music
- GLTF/GLB – for 3D models
What are the main NFT Collections?
There are two collections in the NFT world that are extremely popular.
CryptoPunks: Created by Larva Labs, these are 10,000 unique pixel-art characters. They were the first major NFT project and helped popularise the idea of NFT art.
BAYC (Bored Ape Yacht Club): Created by Yuga Labs, this is a collection of 10,000 funky cartoon apes with unique traits. They’ve become status symbols online and are owned by celebrities.
Where Can You Buy or Sell NFTs?
One of the most popular marketplaces is OpenSea.io. In layman terms, it’s eBay for NFTs, where you can browse, buy, sell, and create NFTs in all categories. You’ll find everything from rare art to game items at the platform.
What we know so far?
Now that you have come to the end of this article, you probably understand that Non Fungible Tokens (NFTs) are unique digital assets that represent ownership or proof of authenticity for items such as art, music, and collectibles using blockchain technology. They can be anything from images (JPG, PNG) to videos (MP4), audio (MP3), 3D models (GLTF/GLB).
It is now your opportunity to explore the world of NFTs.
What is Semi-Fungibility?
When you browse the NFT world, you will also come across semi-fungible NFTs. These are NFTs that start out fungible or interchangeable and subsequently become unique.
For instance, think of a video game in which you buy 10 identical weapons which are fungible but as the game goes on one weapon gains more power and therefore becomes non fungible.
The same theory applies here and these semi-fungible NFTs are essentially supported by the ERC-1155 standard on Ethereum.
Key Takeaways
Tokens and NFTs are essential building blocks of the blockchain ecosystem. While fungible tokens enable seamless exchange and transactions, non-fungible tokens provide uniqueness, scarcity, and authenticity across industries like art, gaming, and music. As crypto and blockchain advances, so will NFTs; offering exciting opportunities for creators, investors, and collectors alike.
