Hi all,

Back in 2021, you may have read some headlines about NFTs being sold for crazy prizes. While they had been around for a while, the hype really kicked off in March of that year when auction house Christie's sold a digital work of art for $69 million.

After that, many people tried to make quick money with NFTs. Even more people, however, didn't even know what an NFT is.

So what’s up?

We'll bring you up to speed on the basics:

• What is a non-fungible token?

• What can you do with NFTs?

• What are the potential benefits?

Today is just an introduction though. In the coming weeks, we'll provide you with a couple of case studies to show you how NFTs are already being used by millions of people – even though many of them don't actually realise it.

Let’s get started! 🤓

The abbreviation NFT stands for "non-fungible token". Sounds a bit strange? It's actually quite simple to explain.

Let's start with a token. In everyday life, a token is an object which represents something else. It might be flowers or a friendship bracelet which you're giving to somebody as a token of your affection.

It could also be a banknote which is worth a lot more than the paper it's printed on. That's why it's sometimes called 'token money' as it merely represents a certain value (which is different from a gold coin).

Money is also a perfect example for something that is fungible. You can exchange any banknotes into other denominations to end up with the same value. Swapping a 20-dollar bill for 20 one-dollar bills doesn't make a difference for your spending power.

What is a non-fungible token?

"Token" is a word that you can also find a lot in the context of blockchains and cryptocurrencies. Even though we're talking about digital tokens, they are still used to represent something else, e.g. information or value.

Cryptocurrencies are one example for tokens. There are also other types such as governance tokens which give you specific voting rights. We've put some other use cases together here.

Just like "real" money, cryptocurrency tokens are completely fungible. The value of the banknotes in your wallet does not depend on the serial number. That's also true for cryptocurrencies. (There are no serial numbers on tokens but you can still trace them.)

Tokens can also be used to represent something else. Digital art is an obvious example, bringing us back to the $69 million sale of an NFT back in 2021.

Whether you think that it was a bit expensive doesn't matter in this context. The main point is that an auction only made sense because only one token in the world exists which represents ownership to this particular piece of art. You can transfer it to somebody else or swap it for another token that represents some other piece of art but it won't be the same. That's why it's called non-fungible. 

None of that is different from the "real" world. You can buy a house or a painting for a certain amount. When you try to sell it, it may be worth more or less. You can swap a house for another house or a painting for another painting and it might be worth more or less, but it won't be the same.

What can you do with NFTs?

This is where it gets interesting – and a bit theoretical. Blockchains haven't been around for a long time. Actual use cases are therefore constantly developing (and we'll talk about some in the coming weeks).

NFTs are created by a process called minting. That involves encryption of relevant information and recording it on a blockchain. You can mint 1000 NFTs of the same item but each of them is a token with a unique identifier so you can distinguish it from the others.

That means an NFT can represent something native to a blockchain like digital art. It can also be used to represent pretty much anything you can imagine in the real world.

You're renting a holiday home for a week? You can use an NFT as an electronic key. You want to collect loyalty points for buying coffee from your favourite chain? You can collect NFTs. You want to attend a concert or a sports event? Your ticket can be an NFT.

Such a widespread adoption of NFTs requires – among other things – a better user experience. As a result, NFTs would very likely help to increase the acceptance and adoption of cryptocurrencies and blockchain tech in general.

What are the potential benefits?

The examples above are just the start. As mentioned, NFTs can be used to represent just about anything. Companies can mint them to represent a delivery to another company. Upon delivery of physical goods, the NFT is transferred to trigger an automatic payment and to simplify the tracing of deliveries throughout the supply chain.

That's a very simplified version of something that various companies are actually working on. Intransparency in supply chains is a huge opportunity.

For your everyday life, NFTs also have benefits. They can evolve over time or you can merge several NFTs into one. Your ticket to a concert or your loyalty points for buying coffee could become something else which may be valuable – to yourself or to somebody else.

Creating something unique and (possibly) valuable is another potential benefit. Since it's easy to transfer NFTs, you can simply buy and sell them – either the original or an evolved version. Without actual use cases, however, this discussion is a bit theoretical so it's better to stop here and show you the potential of NFTs in our upcoming articles.

That’s the end for today! 😢