Beginners Guide to Blockchain Part V: What is an NFT?
In January 2018, Philadelphia based William Entriken and a team of tech developers proposed something called an ERC 721 and then the world changed, slowly but surely.
You see in the world of Blockchain you have two huge projects: Bitcoin in first place and Ethereum in second.
Bitcoin could be compared to “gold” in the matter that it is usually used as an asset in which we store value and then you have Ethereum, which also has a token, Ethe, where you can store value but also serves as a platform where you can build dapps (decentralized applications on top of it).
Now, stick with me because I’m getting a little techie here… In the world of Ethereum there used to be only one type of token called and ERC20. I know, it sounds like R2D2 but it’s important you get this point.
An ERC20 is what we call a fungible token. Fungible meaning that one token can be exchanged for another one that is identical in value to it, let’s say like a dollar — You could exchange one dollar bill for another dollar bill and no side of the equation would loose value.
Most crypto-currencies people trade are ERC20 tokens and it works perfectly when we are talking about coins but what William Entriken and his team proposed was creating a new type of token inside the Ethereum ecosystem called the ERC721 — A token which’s main characteristic was that it was a non fungible token.
What is an NFT?
NFT is an acronym for Non Fungible Token. An NFT is a record within a specific blockchain, usually Ethereum, that is fully transparent, decentralized, hard to corrupt and that links to or represents a unique digital asset such as art, music, video or more.
There are some other differences between ERC20 tokens (fungible) and ERC721 tokens (non fungible) that you can geek out with in this great article by 101 blockchains, however, I’ve already given you the basics.
“But Chris, can’t you just right-click-copy any image on the web?” you might be asking… And the answer is yes but no.
You can right-click-copy any image on the web of course but that doesn’t mean you’re the owner of it.
I think the best way to explain this is with the Mona Lisa — The original one is worth millions because it has been authenticated as the only one, a piece packed with story, exclusivity and scarcity but this doesn't stop millions of people from having replicas of it. It’s actually even flattering.
Now, thanks to the Blockchain we are able to label, record and create unique digital assets and everyone can do a quick search for an Ethereum wallet address using Etherscan and see who is the legit current owner of that NFT.
I must also add that there are plenty of ways in which NFT’s are being used and will be used in the future, some of them are:
- NFT art collections such as CryptoPunks, Bored Ape Yacht Club and Doodles — This NFT collections can have lots of value due to the network they make you a part of, the historical significance of the collection or through utilities the founders create for token holders.
- Music NFTs. A lot of artist have started launching their albums through NFT’s which can also be packed with utilities for the buyers like vip access to concerts, streams and more. Some of them are Kings of Leon, DJ and crypto-enthusiast 3LAU and more.
- Keeping records of anything valuable at all. ERC721 tokens are a tool through which real state can create records of properties bought and sold, governments can store citizen’s data safely and banks can identify unique assets to individuals. It’s future is limitless.
So there you have it. I hope this gives you a little glimpse into what an NFT actually is. You can hop on to the biggest secondary market for NFT’s right now and purchase one if you like to; Opensea.io — Just as always, do your own research and be aware that the crypto space is packed with people trying to take your money. Keep safe.
And if you’d like to dive deeper into the crypto world, follow me on twitter at @thechrispace and check out my previous articles here in medium.
Chris Pace.
