NFTs | Non Fungible Tokens

In order to define NFTs, it is worth explaining the concept of fungibility and non-fungibility. An asset is considered to be fungible when there is the possibility of replacing it with an identical one, both in terms of quality and quantity (e.g. money). Similarly, an asset is non-fungible when such a substitution for an identical item is not possible given the intrinsic individuality of the good itself (e. g. a work of art). A fungible token is a token equal to every other of its kind and capable of mutual substitution. In fact, one fungible token can be traded or exchanged for another fungible token (of the same kind).

On the contrary, an NFT is a peculiar type of token that is indivisible and unique. This category of tokens, as the name suggests, are characterised by their non-fungibility and interchangeability. They cannot be exchanged for the same amount of the same type precisely because they are unique and because each has different characteristics. NFTs, in fact, grant a mark of originality since each of them consists of information and data that cannot be replicated and that differentiate it from any other NFT, thus making it irreproducible.

In this, they differ from exchange tokens (e. g. Bitcoin) that are instead fungible in nature. To summarise, it can be stated that NFTs are characterised by the following elements:

  • uniqueness: in that, an NFT is or represents a unique object, whether digital or otherwise, which
    maybe associated unequivocally with a user or to a virtual wallet;
  • indivisibility: cannot be split up into parts;
  • non-fungibility/interchangeability: NFTs are not fungible and replicable.

NFTs can enable tokenised proof of title to digital versions of underlying digital assets (e. g. images, videos, other digital content) or physical assets (e.g. paintings, sculptures, other tangible assets). Whilst such tokenized proof can be generated, ownership, as prescribed by law, may differ. In fact, one of the main characteristics of NFTs is that they can technically represent any type of asset, both digital and physical.