Freedom Economics Publications - NFT Blueprint--Cryptocurrency Investing For Beginners: Non Fungible Tokens Explained, The Blockchain Technology Behind Them & How NFTs Work With Bitcoin, Ethereum & Altcoins

The abbreviation NFT stands for non-fungible tokens, on German: non-replaceable token. NFT are certificates for unique digital objects. You certify that you own a specific file. Fungible in itself means that a thing can be replaced by something equivalent. For example, it does not matter whether you have 20 dollars in your wallet as a single note, four 5-dollar notes or 20 1-dollar notes.

However, objects that are unique by certain properties are not fungible. Such objects can exist either physically or digitally. For physical objects, such as a painting or car, it is easy to set a value. This is measured by the uniqueness of the work of art and how much people are willing to pay for it.

For digital objects, this is more complicated. After all, despite copyright and usage rights, every image, song and video can be copied and redistributed at the click of a mouse. It is difficult to determine the exact value or owner of a file. This is where the idea of NFT starts: The digital tokens contain information about a particular file that is both unique and verifiable. The blockchain technology is used to verify the authenticity of the files.

Blockchain is basically a kind of database in which transactions of digital goods, such as cryptocurrencies, are stored in blocks and distributed on many computers worldwide. For example, Bitcoin is on a blockchain. Its architecture makes the blockchain tamper-proof.

Unlike cryptocurrencies, NFT in a blockchain does not represent an interchangeable asset that is transferred from one person to the next, but a concrete asset like a unique digital work of art that is linked to an owner and a value. Simply put, by storing the NFT in the blockchain, digital goods become things that really belong to you.

Currently, the open Ethereum blockchain is the most important for NFT trading. Purchases of virtual goods are therefore usually processed in Ether, the second highest endowed cryptocurrency after Bitcoin.

To understand what makes NFT so special, you first need to understand the difference between fungible and not fungible. If something is fungible, it means that something is homogeneously interchangeable. Examples of this from the real world include banknotes or precious metals: one gram of pure gold is worth as much as another gram of pure gold. And if you give someone a ten-dollar note, it wouldn't matter if they didn't give back exactly the same note.

All this changes when something is not fungible. Although two items may look identical at first glance, both have unique information or features that make them irreplaceable or non-interchangeable.

An example of a non-fungible good could be a plane ticket. Airline tickets are the same at first glance, but each ticket contains a different passenger name, a different destination and a different seat number. Therefore, there could also be serious consequences if you exchange a plane ticket for another. The same is true in the digital space with NFTs. Another example would be Internet domains, as each domain can only exist once.

Non-fungible tokens can limit things in digital space and present them uniquely. Many other tokens or cryptocurrencies like Bitcoin or Ether are fungible. If you send someone an ether and get an ether back for it, you wouldn't notice any difference.

The same applies to tokens: Most tokens so far are based on Ethereum's ERC-20 standard. For the sake of simplicity, one can imagine that each of these tokens represents a 10-dollar note. If you send this token to someone and get another one back a week later, it's the same as the other.

All of this changes with non-fungible tokens. Currently, most NFT on the Ethereum blockchain use the so-called ERC-721 standard. Tokens that use this standard can be compared to Pok mon or Yu-Gi-Oh collectible cards. Each token contains unique information and a different level of rarity.

There is also another serious difference to consider. Fungible tokens are divisible, which means it is possible to send or own a fraction of Bitcoin or another ERC-20 token. Similar to cash, where you can pay with a ten-dollar note and receive change.

Non-fungible tokens cannot be shared and must be purchased or sold in their entirety. As with collectible cards, where no one would think of buying half a card.

Here are the unique properties of something fungible, like cash or cryptocurrencies, that are different from NFTs.

NFTs have several features that make them unique. Some of them are

NFTs are not interoperable

This means that one NFT cannot be used instead of another NFT. This is because each NFT is unique and has its own features and information. An example of this would be the game CryptoKitties. A user cannot use an asset from the game in another game.

Verifiable

All data on NFTs is stored in the blockchain so that it can be easily traced back to the original owner. This makes it easy to authenticate NFTs. Non-fungible tokens can limit things in digital space and present them uniquely. Many other tokens or cryptocurrencies like Bitcoin or Ether are fungible. If you send someone an ether and get an ether back for it, you wouldn't notice any difference. The same applies to tokens - Most tokens so far are based on Ethereum's ERC-20 standard. For the sake of simplicity, one can imagine that each of these tokens represents a 10-dollar note. If you send this token to someone and get another one back a week later, it's the same as the other. All of this changes with non-fungible tokens. Currently, most NFT on the Ethereum blockchain use the so-called ERC-721 standard. Tokens that use this standard can be compared to Pok mon or Yu-Gi-Oh collectible cards. Each token contains unique information and a different level of rarity.

Indestructible

NFTs are indestructible because they are powered by blockchain technology and smart contracts. The inherent transparency and immutability of the blockchain ensures that NFTs cannot be destroyed or duplicated

Indivisible

Fungible tokens are divisible, which means it is possible to send or own a fraction of Bitcoin or another ERC-20 token. Similar to cash, where you can pay with a ten-dollar note and receive change. Non-fungible tokens cannot be shared and must be purchased or sold in their entirety. As with collectible cards, where no one would think of buying half a card.

What began as a niche topic among crypto and gaming fans has meanwhile aroused great interest outside the scene. Above all in the art world, NFT are highly traded. Canadian artist and singer Grimes auctioned off digital art on the Nifty Gateway platform, taking in about six million dollars in 20 minutes.

The renowned British auction house Christie's has also jumped on the NFT train. In cooperation with Markerspace, a sales platform for crypto art, Christie's is auctioning the firstall-digital NFT-werk by the artist Mike Winkelmann, aka Beeple, until 11 March. A day before the auction closes, the highest bid for "Everydays: The First 5,000 Days" is 9.75 million U.S. dollars.

More and more musicians and influencers are also weathering the opportunity in NFT. The US band Kings of Leon announced that they would release their new album as a limited NFT-Edition. In Germany, the artist Fynn Kliemann auctioned 100 NFT-produced jingels via the blockchain, taking in around 250,000 dollars.