In order to understand NFTs, we need to understand three important concepts. 1) Subjective versus Objective Value Certain things are valuable regardless of who you are. Humans cannot survive without food and water - they are both valuable commodities. The same is true of the air we breathe. Other things have subjective value. A Picasso painting may be worth hundreds of millions of dollars to an art collector, but relatively worthless to a nomad that lives in a desert. Subjective value is based on beliefs, perceptions, and preferences.
2) Fungible versus Non-Fungible Assets Fungibility refers to something that is interchangeable. For example, if I borrow a $100 bill from you today, when it comes to paying you back it is not necessary to return that same bill. I am able to return any bill. Money is fungible. If I borrow your car today, when the time comes for me to return the car, I would need to return your car - not just any car. A car, therefore, is non-fungible. Fungible assets are also divisible- a $100 loan can be repaid with ten $10 notes while a car cannot be divided up into 10 parts without dramatically changing its value. There are also semi-fungible assets - such as a ticket to a U2 concert. Although the tickets are interchangeable, they are not 100% the same given the designated seat of the ticket. 3) Definition of Tokens A token is something that is either physical or digital that backs a good or service or some other form of value or utility. In the world of crypto, a token can represent a stake, a voting right, a toll, a currency, a store of value, or ownership of something, or it could have specific value within an ecosystem. While the token itself has no inherent value (like a bar of gold would have), it confers upon the holder certain values, rights, or entitlements. Now we need to understand the blockchain. This is a system of recording information in a way that makes it difficult or impossible to change, hack or cheat the system. You can think of it as a giant excel spreadsheet connected to a network of computers. In order for a transaction to be saved on the spreadsheet, nodes in the network need to verify it making it difficult to add false entries. Once the transaction has been verified, it is saved into the ledger and cannot be removed. This database managed by multiple participants is known as Distributed Ledger Technology (DLT). Blockchain is a type of DLT in which transactions are recorded with an immutable signature called a hash. The blockchain is built on seven properties. It is programmable, secure (all records are individually encrypted), anonymous (the identity of participants is either anonymous or pseudonymous), distributed (all network participants have a copy of the ledger for complete transparency), immutable (any validated records are irreversible and cannot be changed) and time stamped. One additional point on transparency. Imagine if every country in the world was forced to account for every cent they spent. This would mean that every citizen could at any time access the spending ledger and every cent would be accounted for. Would you not say that every citizen deserves this kind of transparency? That would be an interesting topic for debate, but this is the level of transparency afforded by the blockchain. Now we are ready to get into the world of NFTs. An NFT or non-fungible token is a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership. Due to the fact that NFTs are uniquely identifiable, they differ from cryptocurrencies which are fungible. Now we are heading toward the eureka moment. When most people think of NFTs, the first thing that comes to mind is digital art and more specifically the Bored Ape Yacht Club and CryptoPunks. But that would be a very limited way to look at NFTs. Sure digital art is currently a big part of the space, but its application can be far wider. Let's say you are looking for a domain that cannot be blocked or taken offline using the traditional censorship methods used by governments and companies. You also need your domain to be extremely secure, and that only requires one-time registration. Welcome to Unstoppable Domains. Unlike traditional domain name registration, when you purchase this type of domain you are actually minting an NFT. But NFTs go beyond digital pictures of apes smoking joints and laser beams coming out of their eyes and having an uncensorable website. It goes to the heart of web 3.0. Web 1.0 was read-only, and Web 2.0 was read-and-write (where you could interact with the internet). Web 3.0 is all about reading, writing, and ownership. Here are five ways that NFTs will change the world. 1) Art, Collectibles, Wearables, Gaming In March of 2001, Mike Winkelmann (more commonly known as Beeple) sold his Everydays: The First 5000 Days digital artwork for $69 million through an auction at Christie's. NFTs are democratizing the art world and making highly valued art more readily available to retail customers without connections to dealers and galleries. In addition, the technology eliminates the chance of buying a fake. An NFT functions as a certificate of authenticity that confers verifiable digital provenance. Major fashion brands are taking notice of the shift in how we collect. Nike and Adidas are creating wearables for the metaverse. Collectibles like sneakers and jewelry are a way to signal wealth and identity, and you can show off these assets in your public wallets for everyone to see. Maybe in 10 years' time, instead of googling someone, you will check their NFT wallet to see what art, collectibles, and wearables you own. Gaming is another massive opportunity for NFTs. For example, Fortnite skins are rare and highly sought after. Now that NFTs have become the hottest topic on the internet, gamers are curious if they will be able to sell their Renegade Raider or Special Forces outfits for hundreds of thousands of dollars. 2) Houses, Cars, and other Physical Property NFTs can provide fast, easy, and trustless proof of ownership for physical assets. How cool would it be if you could buy and sell houses on the blockchain? It would remove the time, hassle, and expense of having to deal with intermediaries and provide for a more liquid market as the costs of selling would all be removed. Blockchain technology can provide for the property through immutable records and auditable transaction history for land registration and transfers. This could be some time away because in order for those to work, collaboration with existing players like banks and estate agents would be necessary. They may be less than ecstatic to work on a project that may render them superfluous in the future. 3) Charity At the heart of web 3.0 is a commitment to a non-discriminatory level playing field for all - an economy run by the people for the people, not by the banks and the technology companies. While NFTs will not necessarily make it easier to donate to charities, one cannot ignore the fact that a large part of the charity game is about status and virtue signaling. Donations are one way to show you care about a certain issue and NFTs make it easier to virtue signal. Rather than taking a screenshot of your donation to the Red Cross, you can donate through an NFT and display that in your public wallet for everyone to see. 4) Music, Books, and Entertainment JK Rowling, when she wrote the first Harry Potter book was not famous. Assume she had minted 10 NFTs offering rights to the first book, a monthly zoom meeting for an hour reading of the book with her, plus she would earn 10 percent of the proceeds every time that NFT was traded. Can you imagine how that would have taken off? The same could be done for the first demo recording of the Beatles, or for the Star Wars Trilogy. 5) Contracts and Temporary Ownership Consider the contracts of professional athletes. They are complex, full of contingent bonuses, and difficult to transfer to new teams. With NFT technology, bonuses and other guarantees can be added to smart contracts. For example, if Tom Brady needs 4,000 passing yards for a $1 million bonus, that could be written into the contract so that when the milestone is reached, the funds are automatically transferred to his cryptocurrency wallet. Event passes and tickets us another area that could benefit from NFT technology. An event organizer could sell a token that provides access to any event hosted by them, with front-row seats and backstage passes. This token could then be traded in the secondary market. NFTs are going to change the world beyond the cartoon drawings we first think of when we hear those three letters. At their heart, they change the way we communicate and interact virtually. They provide transparency, proof of ownership, and instant access to convoluted industries. They support creators, artists, and charities. It is about fairness and opportunity. It is about community and sparking new relationships. It is about taking control of the internet.