If you’ve heard the word NFT, or the phrase non-fungible token, and not had a clue what was going on, you’re not the only one.
Before 2021 it was a relatively rare term to hear, but in recent months it’s becoming increasingly common to hear it spoken about in relation to digital artwork being sold for millions.
Non-fungible tokens are digital assets that contain identifying information recorded in smart contracts.
It’s this information that makes each NFT unique, and as such, they cannot be directly replaced by another token. They cannot be swapped like for like, as no two NFTs are alike. Banknotes, in contrast, can be simply exchanged one for another; if they hold the same value, there is no difference to the holder between, say, one dollar bill and another.
Bitcoin is a fungible token. You can send someone one Bitcoin and they can send one back, and you still have one Bitcoin. (Of course, the value of Bitcoin might change during the time of exchange.) You can also send or receive smaller amounts of one Bitcoin, measured in satoshis (think of satoshis as cents of a Bitcoin), since fungible tokens are divisible.
Non-fungible tokens are not divisible, in the same way that you cannot send someone part of a concert ticket. Part of a concert ticket wouldn’t be worth anything on its own and would not be redeemable.
NFTs are the latest craze from the world of cryptocurrency.
Christie’s auction house sold the first ever NFT artwork for a whopping $69m (£50m) this week – but the winning bidder will not receive anything physical.
Similarly, an online sale of NFTs by digital artist Pak fetched a massive $16.8million (£12.2million) at Sotheby’s. This included an image of a single pixel for $1.26million (£987,000).