1) What is an NFT? -- Introduction
Part 1 / 3
Intro
Hi! And welcome. You are here because you want to learn more, or be involved in the discussion, about NFTs. I’m glad you’re here :)
This is part of a series of three articles in which we will dive into NFTs.
General (Surface level overview on “all things NFT.” And an invitation for you to stay here a while, through the series)!
Technical (Focusing on the tech which makes NFTs possible). This article is LIVE as of Dec 13, 2021!
Practical (How you, and everyone, can engage with NFTs, including creating your very own). This article is LIVE as of Jan 8, 2022!
Let me start at the end — by stating as simply and succinctly as I can what NFTs are and why they have value.
NFTs allow us to:
make digital items, like pictures, videos, illustrations, etc. unique.
make digital items ownable, and assign ownership.
verify authenticity of digital items.
What was previously not possible — no, more like, as simple — that NFTs make much more robust: Buying, selling, and/or trading digital assets.
The blockchain enables this “ownership layer of the internet.” More on the blockchain in 2) What is an NFT? — Technical
NFTs are essentially the result of when digital items are assigned to the blockchain, thereby making them ownable / owned, unique, authentic, and therefore, buyable / sellable / tradeable.
Even if there are many copies that look just like an NFT, there is still only one of that exact NFT.
Through the rest of this article, I aim to help make these ideas more concrete, “tangible.” Perhaps once finishing the article, revisit the above bullet points and think of some examples for each.
First…
Thought Exercise
Why are you interested in NFTs?
No doubt, you’ve been made aware of the hype surrounding them. But perhaps you’re interested because, depending on where you look, annual global NFT revenue is already somewhere between $1bn - $10bn. If that higher estimate is correct, this industry is already on par with mature and mainstream businesses such as each major American sports league (NBA, NFL, MLB).
Regardless of what the exact revenue figures are, there is no denying that there has been explosive growth in this space.
Maybe you’re also excited about an innovative, fascinating new technology. I know I am!
Let’s get into it.
Define NFT
NFT — Non-fungible Token. That’s what it stands for.
Breaking the Acronym Down
Here are screenshots / definitions for the words of which the acronym is comprised.
Based on these screenshots (source: Google), an NFT is a unique token… a “voucher” that cannot be replaced, but can be exchanged, ie. For money, or other things.
“Fungible” in this context is useful for differentiating cryptocurrencies from NFTs… More on this in 2) What is an NFT? — Technical. One unit of a cryptocurrency is essentially the same as all units of that cryptocurrency. However, one NFT is unlike any other NFT, by definition. It is not fungible!
Alas, we have pieced together the acronym. But there’s more work to be done.
Making the Concept “Tangible” with Examples
In practice, Non-fungible Tokens (NFTs) are unique, ownable digital assets.
Consider, in the physical world, uniqueness and ownership / ownability are fairly intuitive. They are, mostly, clearly defined (but are they in the digital world?). Let’s go through some well-known examples.
Example 1: Houses.
Houses are widely regarded as ownable. They are physical.
Please read carefully go through this illustration:
Above we have a house, and all the houses in this community look the same. But ownership of one house does not mean ownership of all same-looking houses, does it?
Again, I am sure this is intuitive to you.
From communities of suburban McMansions to urban apartment buildings, even if every single space looks identical, each is still considered unique, if for no other reason than because of 1) where it exists physically, and 2) its ownership rights.
Because you own one does not mean you own all same-looking things. We know this. And the same concept applies to digital items on the blockchain. The blockchain can give a digital item, like an image or short video, a unique space to exist — similar to a property for the house to be built on, or a canvas to be painted — and it handles ownership rights, all in one. Even where infinite copies of a digital item can look the same, the blockchain (and use of NFTs) can make them ownable, and decidedly not the same.
The blockchain allows us to apply nearly the same exact concept from these houses (physical space) to the digital space.
Example 2: An autographed basketball.
There is a certain crowd of people (that seem to enjoy Twitter) that will screenshot an NFT, say that they now own it, and think that de-legitimizes the entire value of NFT. Hopefully it is clear already, this is wrong. When an NFT is copied and spread around, this actually, if anything, just helps market it.
Here is an illustrative example of a physical world analogy.
Consider a basketball autographed by Michael Jordan — it is valuable!
Now consider if I, Drew, sign Michael Jordan’s name onto a basketball.
Hm.
Do I have anything but a scuffed up ball? It is not authentic.
That is true even if I wrote the signature perfectly. Since I wrote it, and not Michael, it is not actually something that has value, even though it looks like something that has value. Its lack of authenticity makes it worthless, even though we drew the same thing.
Carry this concept to the digital space. Pre-blockchain, there was not a widely agreed on way to designate authenticity, uniqueness, ownership of digital items. To take from the housing example again, the digital “property” for it to exist on had not yet been created. Pre-blockchain, to take from the housing example, it was like the houses were just kind of floating in outer space, and could not be purchased. Digital items existed, but there wasn’t any mechanism that made them fit for a marketplace. With the blockchain, it is like the houses landed on their respective properties and could now be purchased and used. Digital items now have a home that enables them to participate in transaction.
The blockchain solved that.
Pre-blockchain, it would be hard to define the difference between one digital thing, and all other copies of it.
But using the blockchain, we can differentiate one digital thing (ie. A picture), and all other identical looking digital things (ie. Screenshots of that same picture). And that is what the NFT is — the designation of the digital thing as unique and ownable.
So, a message to the Twitter NFT-doubters: Feel free to make all the copies of the NFTs that you like — spread them around as you wish. It would be akin to me sitting at home signing Michael Jordan’s name onto basketballs — it is verifiably not authentic. You would possibly be helping to spread the word about the NFTs, depending what you choose to do with those screenshots. But only the owner(s) would hold the authentic, valuable item(s).
Example 3: Trademarks.
With NFTs, this isn’t the first time we’ve encountered the concept of owning non-physical things.
If ownership of an infinitely-replicable digital thing seems abstract to you, consider: Logos and phrases are essentially concepts, and they are indeed ownable (ie. Via Trademark). In fact, they have been for years!
You better be careful when considering using a piece of fruit as a logo for a children’s nutrition service, because Apple owns that concept of a design already.
If you have a long streak of success in sports — say, three years — think twice about what term you use to refer to it, because Basketball Hall of Famer Pat Riley may already own the phrase you have in mind.
Own a phrase? Own a concept? Yes, and frankly, NFTs are an obvious extension of that.
I’d like to caveat this with a note that trademarks are not typically seen as tradeable and sellable, which are key components of NFTs. I hope it is a helpful example nonetheless, as it is one long standing example of ownership of the non-physical.
Examples Summary
We humans have thousands of years practice with ownership of physical items, and even some experience with ownership of concepts. While some in this audience may still reject the notion of land ownership, it is a generally accepted principle — likely for good reason. Digital ownership is new, and NFTs are one of the first, if not the first, attempts to add this functionality of assigning uniqueness and ownability, and therefore allowing for buying / selling / trading, to the digital space.
My Goals with this Written Piece
Why am I writing this series? I aim to:
Build community around NFT x digital asset innovation x markets in the discussion thread.
Position myself an an authority / someone to listen to in this space!
Intended Audience
Exactly what I stated in the opening paragraph — those looking to learn more and / or be involved in discussion about NFT. But also…
Those who don’t currently understand NFTs.
Self identified
Anyone who mocks them — particularly if you’ve ever screenshot an NFT and said “Hey, look, I have an NFT!” This is for you lol
If you enjoyed this, please consider supporting me on Patreon. Output of content like this will be directly tied to the attention it is receiving, and support I am getting. My attention is directed toward where I am incentivized to send it.
What’s Next? Series
2) What is an NFT? — Technical (Published Dec 14, 2021)
3) What is an NFT? — Practical (Published Jan 15, 2022)
Thank you for your time! I’d love to hear from you — please comment below questions, thoughts, etc. While this should be viewed as an authoritative piece for what is included, none of this should be viewed as final (ie. For things I left out). There is a lot to say and I’d welcome more thoughts.
Until part 2…