What Is an NFT?

Most Celebrities and famous people are likely familiar with NFTs. We might associate NFTs with digital collectibles authenticated and secured using blockchain technology. By owning an NFT, ownership is conferred upon us as if we had purchased an original work of art. I’m sure we’re familiar with high-profile NFTs from collections like CryptoPunks or Bored Ape Yacht Club selling for hundreds of thousands – if not millions – of dollars. But at a high level, we should recognize that NFTs are a digital certificate of ownership. Once we accept this simple idea, a world of possibilities opens. NFTs can – and are – being used to confer ownership of assets like virtual real estate in popular metaverses like Decentraland and The Sandbox. And NFTs can also confer ownership of real world assets. As an example, an NFT could be used to confer special privileges or access to concerts, sporting events, or conferences. We can easily imagine a popular band selling backstage access in the form of NFTs. This is an application of NFTs that I refer to as “digital-to-physical.” NFTs can also be used to “fractionalize” ownership of other assets. This is a technology known as “tokenization.” It is when a digital token is used to confer full or fractional ownership of an asset. Here’s an easy example: When we purchase a piece of property, like a home, we are typically the sole owner of that asset. Perhaps our spouse will also be on the title to the home, but it typically stops there. But if that property were tokenized, fractional ownership could be conferred to hundreds – even thousands – of token holders. The value of these tokens would fluctuate just like any other security. If the value of the home increases, the value of the tokens would increase, and the token holders would be able to share in that value creation.