Non-Fungible Token (NFT): How It Works

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Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other.

Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions.

NFT stands for non-fungible tokens. Fungibility means that the individual parts which make up a good or commodity are interchangeable. 4 quarters, 10 dimes, and a dollar note, are all worth 1 US Dollar, no matter which way you cut them up. Currency is fungible because it doesn’t matter which dime you have, it’s worth a dime and there is nothing inherently more valuable in one dime than another.  A non-fungible item means essentially anything that is unique– that could be chairs, jewelry, artwork, etc – and hence each is valued individually.

As such, an NFT is a digital asset that represents a unique object, typically digital art, music, or video game items. It’s easiest to think of a sword that your WoW avatar made and sold to another player for virtual gold. The sword only exists in the digital world, but it can’t be interchanged with any other digital asset, and it has real world value.


  • NFTs (non-fungible tokens) are unique cryptographic tokens that exist on a blockchain and cannot be replicated.
  • NFTs can represent real-world items like artwork and real estate.
  • “Tokenizing” these real-world tangible assets makes buying, selling, and trading them more efficient while reducing the probability of fraud.
  • NFTs can also function to represent individuals’ identities, property rights, and more.
  • Collectors have sought NFTs as their value initially soared, but has since moderated.

What is NFT vs crypto?

NFTs can be thought of as a subset of the crypto culture, and you generally need cryptocurrency to buy and sell NFTs. But the main difference is indicated in the name. Cryptocurrency is a currency. Like every other currency, it has only economic value and is fungible.

Understanding Non-Fungible Tokens (NFTs)
NFTs evolved from the ERC-721 standard. Developed by some of the same people responsible for the ERC-20 smart contract, ERC-721 defines the minimum interface—ownership details, security, and metadata—required for the exchange and distribution of gaming tokens. The ERC-1155 standard takes the concept further by reducing the transaction and storage costs required for NFTs and batching multiple types of non-fungible tokens into a single contract.

Much of the current market for NFTs is centered around collectibles, such as digital artwork, sports cards, and rarities. Perhaps the most hyped space is NBA Top Shot, a place to collect non-fungible tokenized NBA moments in digital card form. Some of these cards have sold for millions of dollars.
Recently, Twitter’s (TWTR) Jack Dorsey tweeted a link to a tokenized version of the first tweet ever, in which he wrote: “just setting up my twttr.” The NFT version of the first-ever tweet sold for more than $2.9 million.

NFTs shift the crypto paradigm by making each token unique and irreplaceable, thereby making it impossible for one non-fungible token to be equal to another. They are digital representations of assets and have been likened to digital passports because each token contains a unique, non-transferable identity to distinguish it from other tokens. They are also extensible, meaning you can combine one NFT with another to “breed” a third, unique NFT.

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