The Term NFT to most people is a very fugazi term as are many things related to “the blockchain”. Many people often think of an NFT as a jpeg file that’s just hosted on a blockchain which generally raises the question “how are these valuable?” This definition of NFT is a major misconception, and some could argue that the term NFT (Non-Fungible Token) is even a disservice to what they really are.
In order to understand NFTs, you have to first understand the fundamental technologies that enable them.
- Blockchain is a term that feels complex, however, it’s fundamentally a very simple technology. A blockchain is essentially the repeating process of a whole bunch of information being added to a block, which then gets verified by nodes on the network and added to the existing chain of blocks (the blockchain).
- Smart-Contracts are actually the technology for NFTs. These are essentially digital self-executing contracts that are written into the block of information on the blockchain. When that block gets verified by the nodes on the network, the digital contract is also verified.
Smart contracts, like any other contract, can be written for anything. From making sure someone gets paid a specified amount based on specified criteria, to proof of ownership, to royalties on transactions. That is where we can start to think about NFTs.
NFTs are at their core a smart contract on the blockchain which proves ownership of a digital asset. However, like we said before, you can write anything into this contract, meaning that NFTs can be used to prove both digital ownership and physical ownership. Furthermore, you could also write other perks into these contracts, adding more possibilities for what NFT ownership can mean.
Lets say I want to create – more commonly known as minting – an NFT that proves the holder’s ownership of a digital rendering of a waffle. It sounds stupid right? However, what if I then add to the contract; 5% ownership in my 100 million dollar waffle company and access to the international waffle club which is a group of the most wealthy people in the waffle industry that meets once a month. Now that would be worth something as opposed to a digital waffle. Now, this may not seem as stupid as you may have originally thought.
Getting to the bottom of it, NFTs along with many other blockchain associated technologies are something that have almost unlimited impractical and practical applications. Yet, they have received a bad reputation due to a basic lack of understanding. It goes to show that at the end of the day it all comes down to how you use them.
Stay tuned for an upcoming article (part 2) on how you can monetize this future multi-trillion-dollar technology without actually owning one.
