What is an NFT? (Non Fungible Tokens Explained)

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A Non-Fungible Token, also known as an NFT, is a type of digital token or asset. A common analogy is to think of these as digital trading cards or digital paintings. When you buy an NFT, you are buying the rights to that specific asset. 

What Does Non-Fungible Mean?

Non-fungible: in short, Non-fungible basically means that whatever it is cannot be changed after it has been created. You can’t split it up, and it’s distinguishable from something similar (unlike a Bitcoin). One bitcoin is the exact same as another bitcoin, but NFTs are never the same.

Token: A token is just a small piece of data that you own.

Non-fungible Token: Together, an NFT is a token you can own that doesn’t change throughout time. 

When it comes down to the technical side of things, NFTs are actually just some data that is owned by an “address.” Whoever has the password to this address owns it.

This data is verified on a blockchain and the owner history will always be trackable. There is a common misconception that NFTs are always stored on the blockchain—that you are buying the art itself. But often, this is not the case.

For example, this cryptokitty#23 (that sold for $600,000) is essentially just a small URL that is owned by an address. The image itself is stored off-chain. There is usually a server somewhere that hosts that image, and technically they could alter the image.

It’s important to know what you are actually buying when you buy an NFT. Most of the time, you are buying a piece of data that points to a server that hosts an image or GIF. The server could change, and the image or gif could change—it’s the piece of data that you actually own on the blockchain. 

There are NFTs that are stored directly on-chain, though. Let’s look at some of the differences.

AspectOn-Chain StorageOff-Chain Storage
Data StoredMetadata and ownership information are stored on the blockchain.Only ownership information is on the blockchain; metadata is stored elsewhere.
SecurityHighly secure, as data is distributed across the blockchain network.Relatively secure, but depends on the security of the external storage system.
CostExpensive due to the high costs of storing data on the blockchain.More cost-effective, as external storage is generally cheaper.
ScalabilityLess scalable, suitable for smaller data like simple images or text.More scalable, ideal for larger files like high-resolution images, videos.
DecentralizationCompletely decentralized, with no reliance on external systems.Partially decentralized; relies on external systems for storing the actual content.
ExampleA small digital art piece entirely stored on the blockchain.High-quality multimedia content with a blockchain link to an IPFS storage location.

Why would you buy an NFT? There are many reasons, but right now the main reason most people are buying is because they see them as collectables in the investment category. There are also some that offer passive income, but that’s a topic for another post.

Let’s go over what makes NFTs valuable.

What Makes an NFT valuable?

The biggest question for NFTs is what makes them valuable? Why would you want to own your own NFT or spend a big portion of your cash on one?

1. You’re a Pioneer

Have you ever wondered why it’s so intriguing to be the first at something? Maybe do something no one has ever done, or see something no one has ever seen before? This is the same with NFTs.

Just like Bitcoin is so popular because it was the “first,” the first NFTs of specific creators or businesses will also have value. Pokemon cards are quickly gaining popularity and the most expensive cards are those produced in the “first edition.”

If you have the first United States NFT, it will likely have some perceived value.

2. Utility (Real World Benefits)

Imagine if Elvis Presley was still alive and he sold 50 NFTs. By owning them, you have lifetime access to any shows he hosted. These NFTs would quickly become very popular and very expensive due to their real world benefits. This is the only reason I personally would buy an NFT, is if it had a real world benefit.

I think in the future NFTs will evolve to have this—creators will sell them for income and in turn have a membership community or do monthly lunch meetings or such. 

3. Uniqueness or Rarity

Think of the Mona Lisa. Anyone can have a copy of the Mona Lisa in their room but only one person (or museum) can hang up the real painting by Leonardo da Vinci for everyone to view.

The same goes for the original Constitution of the United States or a Babe Ruth signed baseball. If Stephen Hawking only minted 3 Universe NFTs, they would be valuable because there’s only 3 originals. 

4. Ownership History

Who’s your favorite celebrity? Mine is probably Robert Downey Jr.

Let’s say he decides to sell his leather jacket and buy a new one. When he first bought it, he paid $200, but I might pay $800 just to have the same jacket that Roberty Downey Jr. wore.

The same goes for NFTs. Someone might be willing to pay a million dollars of an image of a duck that Barack Obama owned at one point.

Keeping these in mind, you should think about what makes an NFT valuable.

If an NFT is the first of its kind, if it has a real world benefit, if it’s rare, and if someone valuable owned it… these are questions to ask during valuation.

Let’s go through a quick example of an NFT that was just sold of the Twitter founder’s first ever tweet.

Does buying Jack Dorsey’s first tweet for $2,500,000 fit any of these?

  • First: Yes!
  • Utility: No. You don’t get to change it to advertise your business or something
  • Unique: Yes!
  • Ownership History: No. It’s Jack Dorsey’s Tweet, but nobody famous has owned it yet. If it was my tweet and Pewdiepie owned it, then the answer would be yes. 

If you buy his first tweet, you are betting that someone else in the future will want to buy it more, because holding that NFT does absolutely nothing for you—there is no utility. You’re buying it as a novelty or as an investment. 

Why are NFTs so Popular?

Now that we have gone over what they are and how they work, let’s go over how popular they quickly became.

Just look at this Google trends data of “NFT” searches in 2021:

NFT Trends 2021

See how much it spiked? The term was the most popular ever in December of 2021, which mimics the peak value of NFT collections to date.

Some people started trading NFTs hoping to make a quick buck because their values can shoot up like crazy. It’s a bit like trading baseball cards or rare sneakers—but with digital art.

There’s also the celeb factor. Big names started dropping their own NFTs, and famous digital art pieces sold for crazy amounts. It’s like when your favorite singer releases a limited-edition album, but for digital art.

Not to mention all the online influencers that were paid to promote NFT projects. This buzz pulled in loads of people who might not have been into crypto stuff before.

Plus, with everything going digital these days, especially when we were all stuck at home during the COVID-19 pandemic, owning a piece of cool digital art or a virtual experience just felt right. It’s like how we value experiences and memories; NFTs are just the digital version of that.

So, in a nutshell, NFTs got huge because they’re a new way to own and make art, they got a push from famous folks, there’s a chance to make some money, and they fit perfectly with our move into doing more stuff online.

Can Someone Copy your NFT?

Technically yes, someone can copy an NFT just like a piece of artwork, but the original NTF address can be traced back to the creator since all NFTs have a log of their transaction history.

Someone could create an NFT that points to the exact same hosting address that your NFT does, or they could point it to a different address that is the same image or GIF. Remember, the value in an NFT isn’t the image; it’s the specific piece of data.

Just like I could make a free throw at my local YMCA, but Lebron James tossing one while 30,000 people are watching—one has way more value due to what other people think of it. I may be doing the same thing Lebron is doing, but people value his free throw way more than mine. 

How Do You Buy an NFT?

Purchasing an NFT is quite simple, and is probably the same difficulty as purchasing a stock of a company.

Most NFT’s are sold on marketplaces (similar to eBay, Amazon, and Facebook Marketplace) that specialize in token transactions.

One thing that might be a drawback is that most NFT’s are purchased with Ethereum, so you’ll likely need to own some Ethereum before purchasing a CryptoKitty or NBA Topshot.

More blockchains are working with NFTs lately though, so be sure to check which cryptocurrency you need based on which NFT you want (you can see that listed on the marketplace listing). For instance, our WhiteboardCrypto Turtle NFTs are on Polygon, which you can see on OpenSea’s description here:

WBCC Turtle

Transferring crypto usually takes some technical skill because if done incorrectly you could lose all your money in the transaction. Transactions with crypto aren’t like transactions with a bank—you can’t just call someone up to reverse it.

Here are a couple commonly used NFT exchanges that allow you to buy and sell:

  1. App.rarible.com
  2. Niftygateway.com
  3. Opensea.io
  4. Superrare.co

First, you’ll create an account on the specific website you want. Usually you do this with your crypto wallet such as Metamask (though the wallet you use will depend on the blockchain you are using).

Second, you’ll have to either buy crypto or transfer it to the wallet on that exchange. NFT wallets are very similar to any other cryptocurrency wallet, having a public and private key. For those wanting the technicals, most are based on the ERC-721 protocols.  

Lastly, you’ll bid and pay for whatever NFT you are attempting to buy, and if won, it’ll get added to your account and (usually automatically) move to your wallet.

Where Do You Store an NFT?

Now that you’ve purchased your NFT you’re probably wondering where to store it. You’ll want to make sure it’s safe and accessible to show your buddies or other people what you’ve recently purchased.

The best way to store your NFTs is on your hardware wallet, something along the lines of Ledger where it is offline and protected but if you’re wanting to keep it online and on a nice app you can look into these specific wallets as well (these are all Ethereum-based, so if you’re using Solana or Bitcoin or something else, you’ll have to check their ecosystem for appropriate wallets).

  1. MetaMask.io
  2. Trustwallet.com
  3. Enjin.io


Now that you know the basics of what an NFT is and how they work, you’ll be able to navigate the market with just a little more confidence than before before. 

We don’t know exactly what NFT’s will look like in the next 10 years but we’re excited to be able to teach you and everyone else about them.

Thanks for reading, we hope you enjoyed it, and we really hope you learned something.

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