What Is An NFT? Non-fungible Tokens for Dummies

NFTs for Dummies

The eruption of NFTs hit the mainstream with force in 2021. It’s easy to find yourself lost in the roaring discussions surrounding valuations and use cases. As a novel technology, NFTs are misunderstood by many, and dismissed by even more. 

While this may be the case, understanding NFTs and the value they offer is more important than detractors would like to admit. 

Looking deeper into the tech, it becomes clear that this recent blockchain innovation holds the potential to disrupt the world’s largest traditional industries. Even if you aren’t trading them, it’s likely that NFTs will impact your industry in years to come.

NFTs, For Dummies 

Non-fungible tokens (NFTs) are unique digital assets that are transacted on a blockchain. In order to understand how NFTs work, we need to unpack what makes an asset fungible.

Fungibility

Fungibility is an intimidating word with a fairly straightforward meaning. Put simply, this considers whether an asset can be swapped for another without any change in value.

For example, I could give you a $10 note in return for another $10 note, without any change in value. As a result, we can consider cash to be fungible. 

This is important for systems of money. Bitcoin and other leading cryptocurrencies work the same way. All Bitcoins are identical and can be swapped for each other for the same value. 

Conversely, assets that cannot be swapped in-kind are considered non-fungible – giving rise to the NFT moniker. 

These are unique assets that cannot be swapped 1:1 with other assets easily. For example, you couldn’t use somebody else’s passport or ID document, nor could they use yours. 

Similarly, a piece of art is highly subjective, with no identical counterpart. 

This means that unlike cash or digital forms of money, NFTs are unique by nature. In the same way that baseball trading cards represent a player’s unique history, NFTs represent unique digital files. 

Fungible vs. Non-fungible assets (DBS)

Provenance

Provenance is another core concept in the realm of NFTs. In layman’s terms, provenance refers to the origin and history of a specific asset. 

In the world of traditional art, galleries still rely on the word of experts to determine whether an artwork is authentic or a forgery. However, this is not ideal as there is still room for doubt. 

NFTs can automate and simplify this process by providing hardcoded proof of an asset’s history from the time it’s tokenized. This data is publicly accessible on a blockchain and cannot be tampered with. 

Establishing provenance has been a major challenge for digital artists. Despite pouring days and weeks into a specific artwork, anyone can click and save these pieces once they’re posted online. 

Now, digital artists are able to mint an NFT in order to distinguish their original work. While the artwork may be identical to downloaded copies, these copies do not have any ties to the creator and thus, hold no value.

NFTs have empowered digital artists to monetize their work and foster deeper connections with their audiences. The fact that digital art NFTs have now been showcased at the world’s largest auction houses illustrates the technology’s vast disruptive potential. 

These concepts of fungibility and provenance form the core value proposition of NFTs, with applications stretching across major industries. 

Understanding NFT Utility

Digital Art

You’re likely familiar with digital pfp (profile picture) NFTs. While the art itself may be simple, there are many other factors at play. 

Projects like Bored Ape Yacht Club (BAYC) and Pudgy Penguins have cemented their status by cultivating thriving communities. In this context, NFT collections act as a ticket providing access to exclusive events and communities to token holders. This access extends far beyond simple Discord servers. BAYC hosts an annual ApeFest for holders, and many other projects host regular meetups with exclusive perks.

Additionally, these projects minted in early 2021 – well before most other projects that remain active in the NFT space. As such, BAYC and its contemporaries also carry historical significance as some of the first popular NFTs on the Ethereum blockchain. 

Real World Applications

While it’s true that art based NFT projects have dominated the narrative thus far, this is far from the only use case ripe for disruption. The utility offered by NFTs has groundbreaking, real-world use cases. 

Fraud and forgery are common issues across major traditional industries. From automotives to real estate, billions of dollars are lost to bad actors every year. 

NFTs provide a verifiable means to eliminate these risks. By implementing NFTs, industries would no longer need to rely on stacks of paperwork and red tape to ensure that users are acting ethically. 

In addition to eliminating fraud, this would streamline process flows to deliver increased time and cost savings to end users.

Origin Protocol’s NFT arm Origin Story illustrates this potential. Story built the first NFT marketplace for physical real estate in late 2022. Built for real estate heavyweight Roofstock, the platform has seen multiple successful sales since its launch. 

By tokenizing ownership of a home, Origin and Roofstock are able to eliminate a lot of the bloat found in traditional real estate.

As a result, both buyers and sellers have been able to enjoy massive savings on the platform.

Sellers pay a total of 3% fees on the marketplace, which is less than half of industry norms. Fees in traditional home sales can often exceed 10% due to the many parties involved in a transaction. 

Meanwhile, sales are finalized in a matter of minutes on the platform. This is worlds apart from the usual process, which can take up to 60 days.

Minting homes as NFTs also allows records to be tracked on chain (Chainlink)

Will NFTs Last?

The NFT market still only makes up a very small segment of the overall crypto space. This means it’s highly volatile, which is natural for such a novel and exciting innovation. 

While there are no guarantees when it comes to investing in particular projects, it’s clear that NFT technology is here to stay.

If you are a creator or brand interested in learning more about Origin Story, contact us at [email protected]