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WTF are NFTs?

While many industries have their own acronyms, abbreviations, and jargon, the financial industry seems to really enjoy imposing their shortcuts on everyone else. This series will aim to de-mystify WTF the alphabet soup means and how it applies to your life.

NFT stands for Non-Fungible Token. Which clarifies absolutely nothing. What kind of a word is “fungible” and how does something become not fungible? Despite being very similar in spelling, fungible has nothing to do with fungus or fungi. Nope, no mushrooms here. Instead, the Merriam-Webster Dictionary tells us “Something fungible can be exchanged for something else of the same kind”. It follows, then, that non-fungible means something is irreplaceable for something else of the same kind.

San Giorgio Maggiore at Dusk by Claude Monet

Did you ever go to one of the poster sales colleges always hosted at the beginning of the school year? The ones where you could get copies of movie posters, or an inspirational saying to stick on the cinder-block walls of your dorm? I picked up a copy of Claude Monet’s “San Giorgio Maggiore at Dusk” and proudly hung it in my room for years. It probably cost me $15. My mass-produced print clearly wasn’t the original oil painting. But it’s a parallel to NFTs in that there is a valuable original and it’s copies.

It’s the token part of non-fungible tokens that has the investing world all abuzz. The token serves as a virtual watermark or digital certificate of authenticity to prove that the original can only be owned by one person. The tokens are tracked using blockchain: the same technology that makes cryptocurrencies possible. All computers on the network keep their own record of who owns what and they all must validate when a token changes ownership. This system makes it (theoretically) impossible to hack the chain.

In our digital world, it’s easy to get a copy of almost anything. As the Daft Punk song goes, “Write it, cut it, paste it, save it, load it, check it, quick rewrite it…“. It can often be a bit tricky to tell what is the original and what is the copy, but it is possible. Which means there can be ownership. Why someone would want that ownership is another question entirely, but people place value on different things and selling NFTs is emerging as a booming market.

Per a website called NonFungible.com (and backed by research from a reputable firm), the NFT market grew from about $41M in 2018 to at least $338M in 2020. Recently, NFTs have been going to the auction block for 6-, 7-, even 8-figure amounts. Whenever that kind of money gets thrown around, people are going to take notice.

NFTs may be the new way for artists to make money directly from their art/music/videos. Don’t be surprised if you hear more about NFTs in the future. And now you know what they are!

You’re welcome. 😘

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