Non Fungible Tokens: The Basics

Non-fungible tokens, or NFTs, are a new form of digital token that is designed to be unique and not interchangeable. In other words, NFTs are not fungible because they can’t be broken down into smaller units with the same value. Once an NFT has been issued, it cannot be split into smaller units. Non-fungible tokens (NFTs) have mostly been discussed in the context of virtual gaming tokens like CryptoKitties and Rare Pepes. But as you’ll learn in this article, NFTs can refer to any sort of token that isn’t fungible. The term “non-fungible token” was coined by Chris Castle from Ax crypto in this Medium post in January 2019. You can read more about Chris here .

What Are Fungible Tokens?

Fungible tokens are tokens that can be broken down into smaller units with the same value. The most common example of a fungible token is Bitcoin. Let’s say you own 0.1 Bitcoin. That 0.1 Bitcoin is equivalent to 0.1 Ether, 0.1 Litecoin, etc. You can break down Bitcoin into smaller units like microbitcoins and nanotokens, but they’re not worth more just because they’re smaller. Fungible tokens like Bitcoin are used as a medium of exchange. Meaning, they act as a unit of account that can be traded for goods and services. Fungible tokens are easy to trade because they’re interoperable. Interoperability refers to how easy or difficult it is for different types of tokens to communicate with each other. For example, if you own fungible tokens, it doesn’t matter if you bought them on an exchange or on your mobile wallet. They can be transferred to other wallets regardless of where you originally purchased them.

Why Should You Care About NFTs?

NFTs are a new type of digital token that’s been gaining momentum over the past few months. Traditionally, tokens have been fungible, meaning that they can be broken down into smaller units with the same value. NFTs, though, are non-fungible tokens because they can’t be broken down into smaller units. NFTs are used to represent real-world assets that can’t be broken down into smaller units. If you’re a video game developer you might use NFTs to represent virtual weapons or items that can be used in your game. If you’re an artist, you might sell portraits that are represented by NFTs that are non-fungible. If you’re a sports franchise, you might use NFTs to represent season tickets or VIP passes.

How Are NFTs Used?

NFTs are designed to represent a single asset that cannot be broken down into smaller units. For example, let’s say a sports franchise issues 100 VIP passes for their stadium that are represented by NFTs. If one of those VIP passes is sold, the token can no longer be broken down into smaller units. That’s a key difference between NFTs and fungible tokens. If the sports franchise decides to issue 1,000 VIP passes, they can be broken down into smaller units. That’s because VIP passes are fungible. But if the sports franchise issues 1,000 VIP passes as NFTs, they cannot be broken down into smaller units. For example, if one of the VIP passes is sold, the token can’t be broken down into smaller units.

The Benefits of NFTs

NFTs allow you to represent anything that can’t be broken down into smaller units. That means that if you’re a video game developer, you don’t have to create a new token for each item in your game. You can just create one NFT for each item that is non-fungible. That’s a lot easier than creating a new token for every item in your game. If you’re a sports franchise, you don’t have to create a new token for every VIP pass. You can just issue 1,000 NFTs that represent each VIP pass. That’s a lot easier than creating a token for each VIP pass.

Drawbacks of NFTs

One of the biggest drawbacks of using NFTs is that they’re not interoperable. That’s because they can’t be broken down into smaller units. Let’s say you purchase 100 VIP passes from a sports franchise as NFTs. If you decide to sell one of those VIP passes on a secondary marketplace, the person you’ve sold it to can’t transfer it to someone else. That’s because the VIP pass is no longer one token. It’s now 100 tokens. Unfortunately, that means that the person you’ve sold your VIP pass to can’t transfer it to someone else. They’ve essentially purchased one token, but now have 100 tokens.

Wrapping up

NFTs are a new form of digital token that’s been gaining momentum over the past few months. They can be used to represent anything that can’t be broken down into smaller units. That means that if you’re a video game developer, you don’t have to create a new token for each item in your game. You can just create one NFT for each item that is non-fungible. That’s a lot easier than creating a new token for each item in your game. That’s because NFTs aren’t fungible. They can’t be broken down into smaller units.

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