What is an NFT ?

Digital collectibles open blockchain technology to new avenues, outside of conventional financial applications. By representing physical assets in the digital world, NFTs have the potential to be a vital part of not only the blockchain ecosystem, but the economy as a whole.

Non-fungible tokens (NFTs), unlike cryptocurrencies, where all tokens are created equal, each non-fungible token is unique and limited in quantity.

NFTs are one of the building blocks of a new digital economy powered by blockchain. Several projects are experimenting with NFTs for different use cases, such as gaming and fine arts.

To understand the concept of NFTs, we first need to know and understand that in our legal system, there are fungible and non-fungible assets.

Fungible goods are those that can be exchanged, having a value based on their number, size or weight. And non-fungible goods are those that are not replaceable. An example of fungible goods is money. If you have a 100 dollar bill, you can easily exchange it for another 100 dollar bill, it does not lose value and it is exactly the same.

And on the other hand, an example of a non-fungible good would be a work of art. If you have the original painting at home, it cannot be replaced by another one. One work of art is not equivalent to another, and therefore cannot simply be exchanged like a 100 dollar bill.

NFTs allow any virtual object to be associated with a certificate of authenticitythat makes it a unique piece.

When you want to create a digital representation of a work of art, a ‘smart contract’ is programmed that contains such information and also the guidelines of how it is going to be submitted to the different transactions, in this case, buying and selling.

NFTs use the same technology as cryptocurrencies. What differentiates them is the information and instructions contained in the codes of said smart contracts. The main difference is that cryptocurrencies can be consumed and can be replaced by other equivalent units, that is, they are fungible.

As we know, a work of art created from technology—an illustration, a photo, or a video—could be duplicated an infinite number of times: the copy was indistinguishable from the original, but with the advent of NFTs, authenticity is certified. So you can understand each of the NFTS as inimitable archives that can be bought and sold like any other type of property you own (an unique painting, original photograph or manuscript) and that no one else can have.

You can have a work of art that is only a file on your computer and that you can take with you, but with a digital certificate that proves that it is yours, that proves its validity and exclusivity.

Due to the similarity with these unique works of art, NFTs have been considered as unique digital pieces of art. And everyone talks about them.

Why do people buy them and spend so much money? Well, it’s simple, because they believe that its value will increase over time, and then they can sell it for more money

Nobody spends 250,000 dollars for a digital rock because they like rock drawings, since they can have them for free. But because of the value of this particular drawing as it is an NFT.

The idea, therefore, is that if I buy an NFT for 100,000 dollars, in the future I can resell it for more money. It is an unique asset, which in theory should give it a higher value as there is no other like it. And there will never be.

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