NFTs allow for proof of ownership in the digital world. Think of it like this, there is only one person who can own the real Mona Lisa, but millions can have copies of it. The value lies in the real Mona Lisa though. The same applies to digital collectibles and artwork.
Bitcoin represents a fungible token, just like USD bills, while items that cannot be precisely divided and interchanged for the same value, such as diamonds or Pokémon cards, are non-fungible. Once an NFT is minted, it becomes a part of blockchain, a digital asset with its ownership uniquely identifiable and traceable.
What is a non-fungible token?
In economics, a fungible asset is something with units that can be readily interchanged - like money.
With money, you can swap a £10 note for two £5 notes and it will have the same value.
However, if something is non-fungible, this is impossible - it means it has unique properties so it can't be interchanged with something else.
It could be a house, or a painting such as the Mona Lisa, which is one of a kind. You can take a photo of the painting or buy a print but there will only ever be one original painting.
NFTs are "one-of-a-kind" assets in the digital world that can be bought and sold like any other piece of property, but which have no tangible form of their own.
The digital tokens can be thought of as certificates of ownership for virtual or physical assets.
How do NFTs work?
Traditional works of art such as paintings are valuable precisely because they are one of a kind.
But digital files can be easily and endlessly duplicated.
With NFTs, artwork can be "tokenised" to create a digital certificate of ownership that can be bought and sold.
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