What Is an NFT? Non-Fungible Tokens Explained in Simple Terms
NFT stands for non-fungible token. "Non-fungible" more or less means that it is not interchangeable. It is unique and can't be replaced with something else. "Token" referes to the record on a blockchain that contains the information about something.
Often people think of NFTs as digital files, especially when they refer to tokenized digital art and other NFT collectibles. But it is not what the NFT actually is.
Non-fungible token (NFT) is a unique record that securely stores information on a blockchain. In case of digital art, the token contains the information about a digital file, such as who created it, who added it to the blockchain, description of the file, link to the file, but not the file itself. The token points to a file which resides elsewhere.
The blockchain will also store information about who owns the token and who has owned it throughout its history. In other words, the system maintains the record of all transactions.
The tokens, transaction history, and all other records are public. The records are replicated across the entire blockchain network and validated by multiple computers which makes it difficult to tamper with the system.
Today NFTs are synonymous with digital art and collectibles. But non-fungible tokens aren't exclusive to collectibles or just digital assets. NFTs may attest ownership of collectibles, game or virtual reality items, event tickets, domain names, and even ownership records for physical assets.
Blockchain Buzzwords
Non-fungibility. Non-fungible tokens are not equivalent to other tokens - they are one of a kind. For example, a cryptocurrency, Bitcoin, for example, is also a token. But Bitcoins are fungible or equivalent to each other and interchangeable. If you lend a bitcoin and get another one later, you wouldn't care that it is a different token. Whereas, you would be upset if you trade an NFT worth $10 thousand dollars for one that is worthless.
Minting. When reffered to NFT, minting means creating a token for a digital and physical assets.
Blockchain. Blockchain is a database where the information is stored in a chain of informational blocks that are linked together.
Digital ledger. Digital ledger is a record-keeping system which is stored on a blockchain. It is used as a verification mechanism for all transactions and available for public viewing.
Smart contracts. A smart contract is a computer program that is stored and run on a blockchain. One example of this type of program is a smart contract that is used to create and manage digital tokens.