What are NFTs

Fungibility is used in finance to talk about assets that are indistinguishable and interchangeable. A clear example of fungible assets are currencies and cryptocurrencies. A dollar can be interchangeable with another dollar. Likewise, 1 Bitcoin is interchangeable with 1 Bitcoin. Both the dollar and a Bitcoin can be split up into parts without changing their value. For example, a 20 dollar bill can be split up into four 5 dollar bills or one 5 dollar bill split up into five 1 dollar bills.

Non-fungible tokens are unique assets that are not interchangeable and distinguishable, like a cat, a Pokemon card or a car. Cats have unique value to owners. You might not want to trade your cat for a neighbor’s cat, though they’re both Persian. The neighbor’s cat might not have the memories you both have shared. A rare Pikachu card might sell for USD 100,000 in one auction. A similar Pikachu card might sell for USD 50,000 at another auction because that specific card has a scratch on it. Likewise, if you cut up a Pikachu card into twenty pieces, it won’t have the same value as dividing a 20 dollar bill into four 5 dollar bills.

NFTs create this same uniqueness through cryptographic tokens that make a video, game monster, digital land and anything else that anyone can come up with into a non-interchangeable and distinguishable asset.