*obligatory not financial advice*

Hi,

In this series I want to explain some terms that are relevant to the amazing world of cryptocurrencies to help newcomers understand it better. Today I want to talk about Non-fungible Tokens.

Previous Parts:

Crypto Basics #1: What even is a Blockchain?

Crypto Basics #2: What are Smart Contracts?

Crypto Basics #3: What is a Cryptocurrency Wallet?

Crypto Basics #4: What is Mining and Proof of Work?

Crypto Basics #5: What is Staking and Proof of Stake?

Crypto Basics #6: What is Decentralized Exchange? And how do they work?

Crypto Basics #7: What are Stablecoins? And How do they work?

Crypto Basics #8: What are Coins and What are Tokens?

What are NFTs?

NFT is short for Non-fungible token, which means that they are tokens that unique and not replaceable with any other token.

Like I explained last time, tokens are digital assets on a blockchain that can represent anything from real life assets, like dollars, gold or stocks, or even things like voting rights for changes on a dApp. Such tokens are usually fungible and can be replaced by any identical token, for example 5 UNI tokens can be replaced by any other 5 UNI tokens since they all have the same value and utility.

This normal type of token makes sense for any digital asset that is supposed to be used and exchanged by multiple different cryptocurrency users. NFTs on the other hand are better suited to represent anything that is unique, like collectables, tickets or identifications. That is because they are not replaceable or able to be held in fractions, just like you cannot replace an ID with any other ID or own 0.75 tickets for a concert.

Currently, NFTs are mostly used for collectables that are useless images that you could also just screenshot and they rarely have any kind of utility besides flexing with how much money you have to waste, which is why NFTs are notorious for being scams. However, there are some projects that utilize NFTs in creative ways.

For example you could sell art, music or movies as NFTs. The advantage her could be that you actually own the content and can always access it while the movies that you own in your Amazon Prime library depend on your Amazon account and on the company itself.

There are blockchain games with NFT collectables that have utility within their game, like PixelPotus for example. Land parcels and real estate in Metaverse games, like Decentraland and Tezotops, are also NFTs that have utility within their game. This NFTs cannot be simply screenshotted because the games require their players to have them in their wallet to use them.

Projects like Enjin also allow the creation of in-game items as NFTs that can be used in different games and exchanged in a decentralized way, the advantage her is that a player doesn't lose the in-game items he worked for if his account gets deleted or suspended and he still owns the item and can sell it if wanted. There are games like CS:GO where certain items or skins for weapons are sold for thousands of dollars, having those items as NFTs could give their owners more security.

Another proper use-chase could be to sell tickets as NFTs because that could make it easier to verify that the ticket you are buying is a real one. Or you could create identity verifications as NFTs on a blockchain, which could allow some dApps to only give people from certain countries and with a certain age access to some of its features.

NFTs will maybe become a big deal in the future and there are many creative ways they are being utilized, but for whatever reason they are currently mostly used to scam people into buying images without utility, so be careful not to fall for a scam.

I hope that short explanation was helpful for some newcomers. I will keep writing more such short articles about various crypto terms. Feel free to follow me if you are interested.

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