What are Non-Fungible Tokens (NFTs)?

The world of cryptocurrency can move at an alarming rate, with new coins and asset classes constantly in and out of fashion. In early 2021, a new trend took the market by storm – Non-Fungible Tokens, or NFTs for short – and never looked back.

But what are NFTs all about? Why are they considered so important? And why has this new asset class taken off?

From super-rare CryptoKitties (don’t worry – we’ll explain) to famous tweets selling for millions of dollars, this guide will take a detailed look into NFTs and bring you up to speed as quickly as possible.

What is an NFT?

A Non-Fungible Token is a unique digital asset that cannot be divided into smaller parts, unlike most cryptocurrencies. NFTs are stored on a blockchain and most commonly developed to leverage the Ethereum blockchain because of its benefits. As the industry has expanded, several other DeFi networks like Solana have become important players.

The main point of NFTs is that they cannot be directly exchanged with one another because each item is a unique, one-of-a-kind digital asset – hence the term ‘non-fungible’. To explain this, imagine NFTs as airline tickets. Each ticket has specific information like passenger details, flight date and destination. These unique data sets make it impossible for flight tickets to be used as if they were fungible currency, as each different “asset” would have its own intrinsic value.

	Physical	Digital
Fungible	Money, gold, casino chips	Loyalty points, Bitcoin, Ethereum
Non-Fungible	Artwork, tickets to an event, houses	Trademarks, Video game skins, CryptoKitties

Applications of NFTs can vary greatly, from sporting collectibles to virtual real estate on the metaverse. However, NFTs were propelled to the spotlight thanks to its use in digital art. Like an original piece of physical art, all NFTs are designed uniquely. Contrary to regular pieces of artwork, which can be copied or forged to be passed off as original, NFTs are practically fraud-proof as they can be instantly verified via the blockchain. The ownership of the token can be verified, tracked and transferred like other blockchain transactions, opening the possibility for trading.

In short? NFTs can revolutionise the way artists and content creators claim ownership of their works.

What are some important NFT characteristics?

• Unique – Each token has a unique set of properties stored in its metadata.
• Verifiable – Their rarity can be verified on the blockchain, making them fraud-proof.
• Indivisible – They cannot be split into smaller denominations so it’s impossible to transfer or buy a fraction of a NFT. However, some expensive projects issue fungible cryptocurrencies to represent fractional ownership of an NFT (just like holding a stake in a rare artwork).
• Guaranteed ownership of the asset – When purchased, the buyer holds the right to claim ownership of that unique token but not the rights to its distribution.
• Easily transferable – NFTs have been standardised on public blockchains, making transfers across different digital ecosystems quick and simple.
• Indestructible – As data is stored on the blockchain via smart contracts, NFTs cannot be removed or destroyed.

What are the most popular NFTs?

This is where CryptoKitties come into the frame. These cute, collectible digi-kittens were the token that put NFTs on the map back in 2017. Since then, over AUD $56 million has been spent acquiring different CryptoKitties. The most valuable NFT of this collection sold for more than half a million dollars in 2021.

Some other popular NFTs include:

• International auction house Christie’s sold a JPG file by famous digital artist Mike Winkelmann, also known as Beeple, named “Everydays: The First 5000 Days” for US$69.3m.
• Exclusive Ape Yacht Club collections (Bored and Mutant) consistently sit in the top five most valuable and most-traded NFTs. The average price for a BAYC sits at around 23.4 ETH, which at the time of writing is worth about AUD $110K.
• Axie Infinity (AXS) is one of the most successful blockchain-based games of all time. Similar to Pokemon, players can breed and battle pets – which can be collected as NFTs.

Where can I buy NFTs?

NFTs can be purchased just like cryptocurrencies. Usually, investors must use the currency associated with the NFT’s underlying blockchain. For example, Mutant Ape Yacht Club is built atop the Ethereum network and must be purchased with ETH tokens. The majority of NFTs are sold at dedicated marketplaces where users can mint, buy and sell digital collectibles. Certain crypto exchanges like Binance or Crypto.com also offer a variety of NFTs, while more advanced users can use decentralised finance to participate in paid airdrops.

View our comparison of the best crypto exchanges in Australia.

Popular NFT marketplaces

The king of NFT marketplaces is OpenSea. The Ethereum-based platform was founded in 2017 and regularly boasts the highest trading volume of any NFT-based dApp. OpenSea hosts a wide variety of collectibles, including artwork, blue chips like Bored/Mutant Ape Yacht Club and gaming NFTs.

On Solana’s blockchain, investors can check out Solanart or Magic Eden to buy their favourite digital collectibles using SOL.

For music, a popular choice is YellowHeart. This is a platform that several major artists such as Kings of Leon have engaged with in the past, allowing fans a new way to show support and receive unique merchandise and access to content.

NBA fans can’t look past NBATopShop, developed by Dapper Labs. This is one of the most-used NFT marketplaces out there, offering basketball highlights ranging from a few bucks to tens of thousands. For those Down Under, the Australian Football League has created a similar platform called AFL Mint, although the project is still in beta. 

What is the future of NFT technology?

NFT technology has unmapped potential. A lot of the mainstream media around digital collectibles represents it as expensive, meme-based art. While this took the community by storm in 2021, the scope of NFTs is far more exciting.

For one thing, Non-Fungible Tokens can revolutionise how independent artists are compensated. Fans can decide the value of what an artwork, or a song, is worth, and pay appropriately on an open marketplace. On top of this, artists can offer things like VIP tickets and unique backroom content tied into NFTs – giving their supporters another level of access.

NFTs also make sense from a gaming side of things. For example, think about buying a valuable item for a Steam game. Although Valve operates an open marketplace, they have the ultimate power to prevent sales. Additionally, if the Steam ecosystem collapsed – as unlikely as that may seem – suddenly that item is worthless. Using NFTs tied to in-game items can solve this issue.

There are plenty of other applications for NFTs in the future. They can be used for faster and cheaper land settlements, help track unique goods in the supply chain, and so much more.