Non-fungible Tokens: Part 1

You may have recently come upon news regarding NFTs (non-fungible tokens) after the first ever NFT sold at an auction for nearly 70 million dollars, but you might be asking yourself: what exactly is an NFT?

Before I get to that, you might be asking yourself another question as well: what on Earth does fungible mean? Understanding that term makes explaining the concept of NFT far easier.

A fungible asset is one that is interchangeable. Let’s refer to the Ethereum blockchain, which NFT is actually a part of, to better explain what that means. If I lend you an Ethereum coin and you pay me back at a later time with a different Ethereum coin, does it really matter? The nice thing about blockchain is that I will easily be able to determine that you indeed paid me back with a different Ethereum coin, but I almost certainly would not care because the value of two different Ethereum coins is exactly the same. This is what someone means when they refer to cryptocurrency as fungible because they are interchangeable with one another.

On the other hand, a non-fungible asset is not interchangeable. For example, let’s say you lend your neighbor a power drill. Would it be acceptable for them to give back a different drill that was the exact same model and color as the one you gave them? Of course not, right? You don’t know when that drill was purchased and how it was treated. You would only accept your power drill back. That’s why non-fungible assets are not interchangeable with one another.

In my next blog post, I will get into more detail about NFTs, but I wanted to use this post as an initial explainer about the difference between a fungible asset and a non-fungible asset as understanding that concept is paramount to understanding the concept of NFTs.

Data Scientist | Data Analyst