The term NFT has been invading mainstream media lately. But what is it?
NFT is the diminutive for the English term "NON-FUNGIBLE TOKEN".
OK... But still?
First, understand "fungible".
A fungible element can be exchanged or substituted by something equivalent.
For example, exchanging an apple for an apple.
Or a €1 coin versus another €1 coin: and this is where the keystone of the NFT system in the digital world lies.
Because money is fungible.
As well as cryptocurrencies.
Then understand "NOT fungible".
As opposed to fungible, a non-fungible element CANNOT be exchanged for an equivalent.
By definition it is perfectly unique, and perfectly unsubstitutable.
If you wanted to exchange your apple for another apple, you couldn't, even if it was a perfect clone.
Ditto for your €1 coin.
And this is where the exchanges (buying / selling) of unique virtual goods are articulated.
Even if for these digital goods, one can reproduce "copies" to infinity, it is possible to be the sole owner of the original digital good.
To better understand, transpose this into the world of museums and works of art.
The Mona Lisa, anyone can appropriate a version, free or paid: postcard, poster, reproduction, photo...
The original painting, painted by Leonardo da Vinci, there is only one.
Which makes all the value of the original.
And its sole owner, currently it is the French State.
The NFT: a unique token
An NFT is a digital token (an asset) that is not fungible:
- it is unique
- it cannot be exchanged for a token of the same value.
Unlike cryptocurrencies, which are fungible: just as you can exchange a €1 coin for another €1 coin, you can exchange 1 bitcoin for another bitcoin.
Bitcoin being one of the existing cryptocurrencies, among others.
For an NFT, this is impossible.
Is NFT a cryptocurrency?
NFT is not a cryptocurrency: it is not fungible, unlike crypto.
Even more elaborate than an artist's signature on a material work, the NFT is both:
- a certificate of authenticity,
- a title deed
- and a contract.
And above all, above all, it is unfalsifiable.
Unlike Leonardo da Vinci's signature.
Hence the great enthusiasm of some in this new form of investment.
NFTs, in detail
Well, is it still a little vague? Detail.
It is a Certificate of Authenticity
When an artist creates the NFT from a work, this generates a unique digital writing, acting as a marker of unfalsifiable authenticity, embedded and circulating in a blockchain.
It is a Title Deed
On the certificate of authenticity, it is written not only the creator, but also the owner of the work.
Of course, at the creation, the artist is also the owner.
Each buyer of the original digital work will become the new owner.
It's a Contract
Because, in addition to the author and the owner, the NFT includes the clauses of use of the digital work.
As well as possible "royalties" received by the artist at each future transaction, if the creator has decided.
These are automated contracts (also called "smart contracts").
A huge advantage for artists, who may have difficulty asserting such clauses, on non-digital works.
All the data that characterizes the NFT token is generated digitally, and recorded on a registry.
This ledger is incorporated into a blockchain (in English: a chain of blocks - A vast subject in itself).
The blockchain mainly used for NFTs is Ethereum, having Ether as its cryptocurrency.
Ethereum, used since the creation of NFTs, is currently still the main blockchain used.
While there are other blockchains, not all of them are compatible with NFTs.
Why are NFTs so successful?
Before NFT technology, it was impossible to be the sole owner of a single digital file.
Whatever this file was.
From the technical principle, a digital file can be duplicated infinitely, by simple copy and paste.
Whether it's an image, music, video, word file, or anything else, as long as it's a "digital", virtual good.
But... if you own the original file, even if you are the creator, there is no guarantee in a secure and tamper-proof way that you are the sole owner.
This is precisely what the NFTs, linked to blockchain technology, guarantee by authenticating the file as original and protecting it with the famous certificate mentioned above.