Non-Fungible Tokens (NFTs) are the latest development in disruptive blockchain technology innovations, this time in the world of digital art, collectibles, and even luxury goods. Traditional auction houses have already started leveraging the technology, with one piece of digital artwork being sold for $69 million on Christie’s,1 and a visualization of the source code for the internet being sold for $5 million on Sotheby’s.2 Luxury brands, like LVMH, are collaborating to develop the world’s first global luxury blockchain which utilizes NFTs.3 But what exactly are NFTs, and why are they currently drawing so much attention?
NFTs are digital tokens that can be used to represent ownership of unique digital assets on the Ethereum blockchain
As the name implies, NFTs are “non-fungible” in that they are not interchangeable for other items because of their unique properties, similar to the ownership of a car with a unique Vehicle Identification Number. Any digital asset may be “tokenized” into an NFT through the “minting” process, which involves executing a piece of code (a Smart Contract) on the Ethereum blockchain to assign ownership and manage the transferability of the asset. As a result of the success and interest, several other blockchains are also now adding NFT functionality. A key characteristic of blockchains is that the record of ownership cannot be altered. As such, an NFT provides a verifiable and reliable claim of ownership over that tokenized digital asset.