NFTs 101: Understanding NFTs

In the last months of 2021, Collins Dictionary announced that the word of 2021 is “NFT”. So, in this guide, we will try to explain what “NFT” is and why it suddenly became so popular.

The same dictionary defines NFT as a unique digital certificate, registered in a blockchain, that is used to record ownership of an asset such as an artwork or a collectible.

NFT is essentially a cryptocurrency. But it can be any asset that has value outside of the definitions we know when it comes to cryptocurrencies. Any work of art, video, tweet, a website, images, stories you create on social media, and more can be counted as an NFT.

The first time that NFTs gained real prominence, at least in the crypto community, was with the video game CryptoKitties in 2017. This software, based on blockchain and developed by the Canadian company Dapper, allowed you to buy, collect, feed, and sell virtual cats. It became so popular that it had the busiest address on the Ethereum network, accounting for nearly 12% of all transactions and eventually causing a congestion on the network.

Another example is, Jack Dorsey, CEO of Twitter and Square, selling his first tweet as an NFT for over $2.9 million. Sina Estavi, who bought this NFT put it up for auction in April.  He hoped to raise more than $25m from the sale and offered to donate half his takings to charity. When bids reached just $14,000, he pulled the auction entirely.

The most expensive NFT ever sold is Pak's "The Merge". It was sold to a collective 28,983 buyers for $91.8 million in December 2021.

So, what makes them this valuable?

In economics, a fungible asset is something with units that can be easily exchanged, such as money. With money, one can exchange a ten-dollar bill for two five-dollar bills, and still have the same value.

However, if it’s non-fungible, that's impossible: it means it has unique properties, so it can't be traded.

The importance of NFTs comes from the fact that their origin can be ensured by entering a code in the programming. This means that if the work ends up being sold to another owner, the transaction is recorded on this public network, which can be Ethereum or another, and the creator or artist will be paid a percentage for each transmission of the same.

To sum up better, an NFT is like a unique work of art, for example: Mona Lisa of Leonardo da Vinci.

There is only one and it is in the Louvre Museum. If someone wanted to have that particular painting, they would have to buy it (if it was for sale) or get a copy, in which case, we would no longer be talking about the original, which is what gives value to the painting.