What Are NFTs and Why You Should Care

By Dušanka Seratlić, edits Denise Schaefer

Non-fungible tokens (NFTs) have surged in popularity lately, yet most people still find them (understandably) confusing. 

Sure, Bitcoin is like money, but digital. Simple enough (almost). 

But, what are NFTs? Why are some selling for millions of dollars? And why are people buying digital assets they could just download?

It will all start to make sense once you get familiar with the technology and its implications. Below we explore what an NFT is and why you should start learning about this new tech.

NFTs: One of a Kind

NFT stands for a non-fungible token. That probably doesn’t tell you much, so let’s break down the term. 

In the context of blockchain, a token is a digital representation of value, access rights, or ownership. In the real world, a token holds the same meaning. Think of loyalty points, Starbucks gift cards, or redeemable vouchers. These are all tokens that represent a certain value within a system. 

What makes NFTs different is that they’re infinitely more secure. And, you guessed it, it’s because they’re built using blockchain tech. 

So, what makes blockchain so secure? Imagine a blockchain as a ledger or a database. You can record, verify, and store data in this ledger. But, unlike in other record-keeping systems, once you record data in a blockchain, it can never be deleted. This property of blockchain technology is called data immutability. Because blockchain data can’t be changed once recorded, we can trust that no one can alter the records after a transaction. We can also use blockchains to track data origins and ownership throughout the whole exchange cycle. 

Imagine this: you’re buying a painting. The gallery presents a document verifying the authenticity and ownership of the painting. However, you have no real guarantee that this information is true. You are forced to trust the gallery.

In contrast, when you’re buying an NFT, you can easily check who created it and when. You can also check the history of transactions for that NFT. When you buy it, you don’t have to trust the seller at all. All the information relevant to the purchase is recorded and verified through the code.

What is fungibility in crypto?

Bitcoin was the first application of blockchain technology and the first crypto token. (Note: There is no real technical difference between terms like cryptocurrency, coin, and token. Still, these terms denote slightly different things these days.)

Bitcoin and other cryptocurrencies are fungible. Fungibility is an economic term that describes an asset that is interchangeable with other assets of its kind. Our paper money is fungible. A one-dollar bill holds the same exact value as any other one-dollar bill. Similarly, one bitcoin has the same value as any other bitcoin.

NFTs, in contrast, are non-fungible. Every NFT is unique. Think in terms of collectible items: a valuable antique vase can’t be replaced with any other object. The vase is one of a kind.

The fact that NFTs are non-fungible means that a specific NFT can be owned by only one wallet at any given time. The ownership of that NFT is thus easy to track and prove. The monetary value assigned to a particular NFT is also at the discretion of its owner. 

To bring it home… NFTs are tokens that represent ownership of unique assets -- digital, physical, or otherwise.  

NFT Use Cases

In the world of tokenomics, NFTs hold a special place. NFTs represent a unique asset; they’re an ideal form to record intellectual property, ownership documents, and personal data on-chain.

For example, the title deed to your house can be recorded on-chain as an NFT. So can your college diploma or medical records. “Sure, OK, but I already have those documents,” you might think. The difference is, keeping those documents on-chain gives you the sole ownership and control over your assets. It also allows you to share them easily without getting certifications from notaries and courts. 

Arguably, the most exciting possibility with tokenization is that we can now assign value to things we previously couldn’t. We can own, trade, and invest in ideas, community, and social values. With tokenization, fiat money doesn’t have to be the be-all-end-all of how we represent value.

So… Why Should You Care About NFTs?

This is where things get interesting. NFTs can be used to represent collectibles (digital or physical), art, or membership access. They can also be used in gaming, ticketing, digital identity… The possibilities are endless when you realize that NFTs prove, beyond doubt, your exclusive ownership of just about anything. 

The artworld is embracing NFTs because they allow artists to interact with the audience directly. NFTs make it possible for artists to collect royalties long past the sale and avoid gallery commissions. Additionally, NFTs are also paving the way for new models of interaction and new art directions. 

As we start building Web3, NFTs will continue to find applications in almost all forms of digital interaction. Art is just the beginning.

Want to start building this new web together? Sign up for the Surge newsletter and join our Discord to get started in Web3.

Keep in mind that this article, as well as any and all Surge articles, are purely educational and not to be taken as financial advice.