A Non-Fungible Token (NFT) is a piece of data that is stored on a blockchain that certifies a digital asset to be unique. An NFT can represent pictures, videos, GIFs, audio and other types of digital files. Since they are stored on the blockchain they can be used to verify ownership and authenticity. All NFTs derive their value from three factors:
- Scarcity
- Demand
- Uniqueness
It is important to understand the definition of fungibility in economic terms in order to fully understand what an NFT is. Fungibility is the ability of a good or asset to be interchanged with other goods or assets of the same type. Paper money is a good example of a fungible asset; every $10 bill has the same value and can be interchanged for two $5 bills etc. An asset that is non-fungible is unique and can’t be exchanged like-for-like. Pokémon cards are non-fungible as two cards of the same Pokémon may vary in price due to the edition of the card, the card’s condition, if the card is holographic etc.
The real-world use cases of NFTs are still being discovered and will likely continue to expand as mainstream adoption continues. At present NFTs are being used in the following industries:
- Art
- Collectibles
- Fashion
- Finance
- Gaming
- Logisitcs
- Music
- Real world assets
- Sports
The largest NFT marketplace is currently OpenSea and it is host to almost 19 million NFTs at the time of writing. Monthly transaction volume has already exceeded $1.5 billion for August which represents a rise of over 500% in volume from July. CryptoPunks, Art Blocks Curated and Bored Ape Yacht Club are the top 3 NFT collections by volume in the last 30 days.
‘Everydays’ by Beeple currently holds the top spot on the most expensive NFTs list. It sold for $69 million at a Christie’s auction. The artwork is a digital mosaic composed of 5000 art pieces that Beeple has produced daily since May 2007. CryptoPunk #3100 holds second place at a price of $7,580,000 (4,200 ETH). It is 1 of 9 Alien Punks in the wider collection of 10,000 CryptoPunks and this rarity is what warrants the expensive price tag. The third-place spot is held by CryptoPunk #7804 which sold for $7,570,000 (4,200 ETH). This is another Alien Punk and only differs in price from CryptoPunk #3100 by $10,000 due to a difference in the price of ETH when it was sold.
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