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What is an NFT?

What is an NFT?

August 2, 2022
3
 min read

An NFT (non-fungible token) is a record of ownership of a digital asset. Let's look at a few popular types of NFTs.

By: Peter, Alex

An NFT (non-fungible token) is a record of ownership of a unique asset.

What is an NFT?

Let’s recap the difference between fungible and non-fungible tokens:

  • Fungible tokens are interchangeable (e.g., the US dollar, bitcoin).
  • Non-fungible tokens (NFTs) are unique (e.g., art, music, domain names).

Since NFTs live on the blockchain (see what is blockchain), they are:

  1. Decentralized: Stored on a network of computers.
  2. Immutable: Cannot be changed once committed.
  3. Open: Anyone can see the transaction history.

For example, an NFT for a digital art piece might read:

Jenny owns this digital art (URL to file). She bought it from Motionscape (the original creator) on 12/16/2021 for $30,000.

In the example above, the NFT lives on the blockchain and links a digital art piece (e.g., jpeg file) that’s stored off-chain. Some NFTs also generate and store the asset on-chain through code.

Types of NFTs

Let’s look at a few popular types of NFTs:

A few types of NFTs

1/1s (pronounced “one-of-ones”) are single assets. Examples of 1/1s are digital art and domain names. Like museum pieces, people consider the quality of the art, the reputation of the artist, and the desires of other collectors when evaluating 1/1 art NFTs. In March 2021, the artist Beeple sold a 1/1 NFT for $69M at Christie’s. Other 1/1 NFT artists include Xcopy, Coldie, Hackatao, and Motionscape (who made an Odyssey NFT).

Collectibles are sets of NFTs that each have unique traits. Like traditional collectibles (e.g., baseball cards), people consider rarity, cultural significance, and community when evaluating collectible NFTs. Popular categories include:

  • Sports: Collectibles representing sports teams, players, and moments. Examples include NBA Top Shots (NBA moments) and Sorare (soccer players). 
  • Generative art: Collectibles that are generated from code. For example, ArtBlocks are generated from algorithms written by programmers.
  • Profile pictures (PFPs): Collectibles that people buy to represent their online avatars and access PFP communities. Examples include CryptoPunks and Bored Ape Yacht Club.
  • Badges: Collectibles that represent special access or ownership within online communities. Examples include Tom Brady’s Autograph series (holders get special access to future NFT drops and a private Discord).
  • “Lego blocks”: Collectibles designed to be building blocks for something else. Examples include Loot, which features simple text lists of adventure gear. You can imagine people creating character select screens or games from Loot NFTs.
Wanderers is a collectible series featuring motion clips and sound

In-game NFTs enable gamers to purchase and own in-game assets as NFTs. This is a nascent space with huge potential as gaming is by far the most popular entertainment category globally. Axie Infinity is a leading player in this space. The game is especially popular in developing countries like the Philippines where players can earn a living by buying, breeding, and battling digital pets.

Digital real estate includes NFTs that represent plots of land in a digital setting. As people spend more time in the metaverse, creating spaces for them to interact has become a lucrative market. Settings like Decentraland sell plots of digital real estate on a blockchain for creators to build upon.

Music NFTs make it easier for artists to fund their work and for fans to share in the upside of an artists’ success. Royal is an example of an NFT platform in this space.

If you think about the real world, most things in life are non-fungible (your house, a puppy, etc). We believe that NFTs will also expand to many more categories in the future (e.g., fashion and maybe even your home deed).

But why buy an NFT when you can easily “right-click save as” a digital asset? Let’s explore that topic next.

Up next: Why buy NFTs?

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