What are NFTs?

May 20, 2021 2 min read
What are NFTs?

An NFT, or a Non-Fungible Token, is a particular type of blockchain token that cannot be divided into smaller fractions, like currencies. NFTs are a significant innovation for the internet at large, as they can ensure digital scarcity and help to represent ownership of unique digital assets on the blockchain.

This is in stark contrast to the way digital assets have been historically understood, where it has been trivial to make multiple copies of a digital file. However, in the physical world, replicating valuable, unique objects down to their finest details (especially artworks) is nearly impossible. The tokenisation of unique objects on the internet via NFTs, then, is a way to ascribe financial worth to elements of digital culture in a way which has been previously impossible.

Fungibility is an economic idea, whereby, if an object is fungible, it means that it is easily replaceable by another object of the same specification and worth, and that it holds no unique value of its own. Commodities and currencies are a good example of fungible objects. Yet many things that are culturally important to human beings, such as relationships, art and ownership are fundamentally unique and not easily replaceable. NFTs, hence, offer a model of replicating the properties of these real-world, non-fungible objects on the internet -- making it easy to track and verify their provenance: their publication, movement and history of ownership.

NFTs allow for digital scarcity; a way to create unique, exclusive or limited edition digital goods. Their growth in popularity has so far been mainly down to their use as a proxy for social reputation online. In the same way that wearing designer clothes or expensive jewellery is desirable to many in the physical world, using an exclusive NFT as a verified profile picture on social media has become a status symbol online.

The boom in NFT art has allowed digital artists to distribute their work at scale, and to get paid in full with little to no involvement of any middlemen. This is, in fact, a radical improvement in the viability of making a living in creative fields online. However, we must realise that this is still a nascent application of what NFTs have to offer.

At their essence, NFTs provide a secure, verifiable receipt of the ownership of anything that can be represented digitally. As we move towards digital networks which capture and express the value of real world assets in more and more detail, we will see new and powerful ways in which NFTs can be used, ranging from spaces like art, media and publication to real estate, transportation and fashion.

At Stake DAO, we have launched our first series of collectable card style NFTs which complement the investment strategies and other wealth creation tools available on the platform. The idea is to reward the community with collectables for their active participation whilst also enriching the culture around the DAO.

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