July 26, 2022
Victoria Rudi

What’s a Non-fungible Token?

To answer this question, let’s analyze each term.

→ What’s fungibility

Fungibility is a property attributed to money, stocks, goods, and commodities, such as gold, grains, natural gas, and more. This property indicates that singular units are similar and interchangeable regardless of origin. For example:

  • A $20 bill can be exchanged for another $20 bill regardless of the unique serial number each bill carries.
  • You can exchange 100 grams of pure gold for another 100 grams of gold that comes in the form of coins.
  • One TSLA stock represents the same ownership interest in Tesla Inc., whether you’ve purchased it on the London Stock Exchange or New York Stock Exchange.
  • You can trade one bitcoin for another bitcoin.

Fungibility is crucial for money, stocks, and goods reliability. Imagine identical $20 bills having different values. How can you make a $20 bill purchase if each bill costs differently? This would make daily transactions impossible. Fungibility is essential for ensuring that each unit of a currency is worth the same no matter which unit is being spent.  

→ What’s non-fungible

Non-fungibility refers to a unique unit that can’t be replaced with something else. For example:

  • You can’t exchange diamonds because they have different cuts and sizes.
  • A plane ticket contains unique information such as your name, destination, departure time, and more. You can’t pass it on to someone else or exchange it for another plane ticket.

Non-fungible goods can’t be copied or substituted.  

→ What’s a token

According to Token Economy: How the Web3 Reinvents the Internet by Shermin Voshmgirthe: 

“Tokens are to Web3 what websites were to Web1.”

Overall, a token is the symbolic representation of a value, a service, or a product.

As Voshmgirthe suggests: “The term “token” is simply a metaphor. Contrary to what the metaphor might suggest, a token does not represent a digital file that is sent from one device to the other. Instead, it manifests as an entry in the ledger that belongs to a blockchain address. Only the person who has the private key for that address can access the respective tokens, using a wallet software, which acts as a blockchain client.”

→ What’s a non-fungible token (NFT)

A non-fungible token or NFT refers to a unique digital good that can’t be interchanged or replaced with anything else.

→ Examples of NFTs

NFTs can be anything digital, such as:

  • Collectible digital cards
  • Digital drawings
  • Music
  • An in-game item
  • Domain name
  • Event ticket
  • And more

When you buy an NFT, you become its sole owner. You can’t exchange it for anything else. But, you can sell it or treat it as any other speculative asset, hoping its value will go up one day.

It’s worth noting that behind their speculative allure, the use of NFTs will derive and result in designing multiple use cases that will change how we operate online.