What Are Non-Fungible Tokens (NFTs)?

You’ve probably seen plenty of news about nfts lately — the “non-fungible token” that many people believe is the future of digital intellectual property. But what are these things, exactly? And why are they making so much noise?

NFTs are essentially pieces of code that link to digital files. That makes them different from regular digital goods, which are based on unique identifiers like URLs or file names. Because they’re distinct, it’s impossible to trade one NFT for another in a 1:1 swap (like trading your Charizard Pokemon card for someone else’s Joe Jackson, 1909 American Caramel baseball card). This is what gives them their value — unlike any other digital item you can hold in your hand.

There are a few different ways to buy NFTs, and the process can vary depending on where you’re looking to purchase them. Some NFTs are sold directly from their creators through marketplaces, while others are traded on centralized exchanges. Most NFTs are also auction-based, meaning that you’ll place a bid on the one you want to own and, if you’re the winner of the auction, the NFT will be transferred from the seller’s wallet to yours.

In some cases, you’ll be able to use cash or credit cards to pay for an NFT. However, most NFTs are priced in the cryptocurrency used by the blockchain that they’re registered on. If the NFT was minted on the Ethereum blockchain, for example, you’ll need to have Ethereum (ETH) in your wallet in order to purchase it. In other cases, a centralized marketplace will handle the transaction, with prices often set in a currency that’s native to that network.

Some NFTs aren’t intended to be purchased as investments, but rather as collectibles. Popular examples include the NFT versions of popular video games and esports events, along with art and music. Many NFT collectors display their tokens as social media profile pictures or in online galleries, and some even have them framed. Some NFTs are so coveted that they can sell for millions of dollars.

NFTs have also been used to create communities around the work that they represent. Some of the best-known NFT projects — including CryptoPunks and Bored Ape Yacht Club — have been built around this community, with collectors getting access to a members-only discord, exclusive merchandise, voting rights on future project direction and tickets to virtual meetups, for example.

Other NFTs have been paired with real-world perks, such as a ticket to a live concert or event, a physical tattoo or even a piece of land. These are known as “metaverse NFTs” and have helped some of these projects become viral hits, such as internet memes Nyan Cat and Bad Luck Brian.

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