It’s all about ownership.
An NFT is not a picture, or a video or anything like that. It is a digital token that proves ownership of something like a picture or a video or any other thing.
It is powered by the blockchain and can store the ownership of specific assets which are mostly digital, such as an image, video, website or even an individual tweet or a piece of code.
NFT stands for non fungible asset.
It represents the ownership of a unique and distinct thing having its own value, meaning it is non fungible. A bitcoin is fungible, meaning whilst each bitcoin is distinct they all have the same value.
Each NFT retains its own individual value. Two individual NFTs can define ownership of two seemingly identical digital assets whilst being of different value.
So a couple of Jpegs which look the same and are NFTs could look identical whilst having different prices.
Because Bitcoin is fungible, it means there can be many individual bitcoins but they are always the same value.
A person can own an NFT because the ownership is recorded on the blockchain, meaning there are multiple instances of this proof of ownership. Just like a bitcoin.
When you own an NFT you can sell or transfer ownership of the NFT to another person. This happens on the blockchain, is transparent and cannot be canceled.
An NFT exchchange or marketplace allows the selling and buying of NFTs and will update the blockchain regarding change of ownership whilst managing the transfer of funds.
Once sold, the seller has no claim on the NFT and can only regain ownership if the current owner allows this to happen.
Any attempt made to hack the blockchain would fail as it is protected by the fact that ownership is recorded in many places and is decentralised. It would take an improbable amount of effort, money and resources to perform a hack and in 100% of it’s existance the Bitcoin blockchain for example, has never been hacked or turned off.
Where bitcoin has been stolen it is because people, exchanges or websites are hacked, not the blockchain.
Value of an NFT is determined by a buyer and a seller. If many buyers compete to own an NFT and are willing to commit the funds, the value of the NFT will rise. Conversely if there are no buyers the NFT is deemed to have zero value regardless of the value the seller puts on it.
Many NFT assets have risen in price simply because there is a desire by people with enough money to own it. This has caused instances of seemingly worthless pieces of digital art being valued in millions.
The hype behind NFTs has driven the interest in the technology and has persuaded some to think it a gold rush whilst others think it a scam and the ultimate in vapourware.
Most image and video NFTs have no ultility, meaning all you have is an digital asset that can be easily copied. Not withstanding, many non-utility artwork NFTs have retained high value and have an active, liquid market where they can be bought and sold.
An increasing amount of artwork NFTs are being produced resulting in many that have very low or no value. On the other hand where an established artist creates an NFT, or an art NFT which is given utitlity such as access to an exclusive show is sold, the NFT can increase in value.
It’s no longer is the case that an NFT has any value simply because it is an NFT.
For example, if an NFT gave access to a Snoop Dog concert (someone who is a big investor in NFTs) and the price in fiat currency for a ticket to that concert is $100, then it would be accepted that the NFT is worth at least $100, as it gives the owner something other than the NFT.
If that NFT also gave access to the backstage party then the value could be much higher.
Considering that e-tickets are widely downloaded to smartphones it wouldn’t be that much of a leap to attach NFTs to each ticket.
The tech behind the NFT is extremely efficient and fast when it comes to transfering and verifying ownership and can be applied to a wide range of problems. As the future progresses we will see the technology enabling things to happen we have not even conceived of yet.
The future is non fungible.