Non-Fungible Tokens

Non-fungible tokens (“NFTs”) are cryptographic assets on the blockchain that are distinguished from each other with unique identification codes and metadata. Unlike fungible crypto assets, such as crypto currencies like Bitcoin, which are divisible, interchangeable, and not unique (i.e., they can be exchanged with any other token of the equivalent kind), NFTs are unique and not interchangeable. “A non-fungible token is like a unique serial number or a seal of authenticity that includes ownership details and other metadata, recorded on a decentralized blockchain and verified by network participants,” per Dapper Blog. This is “similar to how a car’s VIN number can be used to look up its ownership history, accident record, and other unique features.”

While NFTs were largely popularized between 2020 and 2001, the world’s first NFT – called “Quantum” – was minted by Kevin McCoy on Namecoin in 2014. McCoy’s NFT was not labeled as such at the time, as the term was not coined until September 20, 2017, when Dapper Labs CTO Dete Shirley used it in his ERC-721 documentation that later became the universal standard for all modern NFTs.

Some key characteristics of non-fungible tokens (NFTs) include …

Unique and Indivisible: Each NFT is unique and cannot be replicated or divided into smaller units. Unlike cryptocurrencies, which are divisible into smaller fractions, NFTs are whole units that represent a specific item or piece of content.

Ownership and Authenticity: NFTs serve as a digital certificate of ownership or proof of authenticity for a particular item or piece of content, such as artwork, music, videos, virtual real estate, collectibles, etc. They provide a way to verify and track the ownership and provenance of digital assets.

Immutability and Transparency: NFTs are typically built on blockchain technology, which ensures immutability and transparency. Transactions involving NFTs are recorded on a decentralized ledger, making them publicly verifiable and resistant to tampering.

Interoperability: NFTs can be bought, sold, and traded on various online marketplaces and platforms. They can be transferred from one owner to another, allowing for the seamless exchange of digital assets across different ecosystems.

Smart Contract Functionality: NFTs often utilize smart contracts, which are self-executing contracts with predefined rules and conditions. Smart contracts enable automatic royalty payments, licensing agreements, or other customized functionalities related to the NFT.

Potential for Programmability: NFTs can be programmed to include additional features or functionalities. For example, they can contain unlockable content, interactive elements, or the ability to upgrade or modify the underlying asset.

Potential Value and Investment: NFTs have gained popularity as a form of digital collectibles and investments. Their value is determined by factors such as scarcity, desirability, provenance, and the perceived worth assigned by buyers and collectors.