In recent months, the term “non-fungible token”, or NFT, seems to have taken a significant foothold in our financial media outlets. Despite its origins tracing back as far as 2014, the recent and sudden burst in the popularity of NFTs has undoubtedly left many still confused as to what it actually is — beyond the expensive piece of digital art occasionally sold for millions of dollars.

The term “fungible”, in economic jargon, refers to assets that can easily be interchanged with one another, where its value can normally be divided into units. The most familiar example is money, in that a 10,000 KRW note can easily be exchanged with two 5,000 KRW notes, which hold equal value. As such, a “non-fungible” asset  refers to one that cannot be interchanged. This could range from tangible assets, such as buildings or physical art sculptures, to the intangible NFTs, which serve almost as a certificate of ownership to a specific unique asset. This means that no matter how many times an NFT is “screenshotted” or copied, it cannot hold the value that the original token has, just as how a picture of a famous painting holds no value in comparison to the actual art piece.

However, this raises an important question: while the certificate of ownership of a physical asset can be proven by the physical ownership of said asset, how can one prove the ownership of a particular NFT if anyone else can make a direct copy?

This is done through a medium known as “blockchain”, another closely related word that has gained popular traction in recent times. A blockchain refers to a virtual “ledger”, essentially a database constructed from a network of computer nodes. This allows for a log of transactions on a blockchain to be completely decentralized, such that all information on a large blockchain can be trusted as legitimate without the need to seek third party confirmation. “Cryptocurrencies” also use such a medium to keep track of the legitimacy of all its transactions, the main difference being that cryptocurrencies are fungible. 

All this gives NFTs a special property — they can be sold for cryptocurrencies or traded, much like real-life assets, but lie solely in the digital world. This offers some distinct advantages over other tangible assets, since NFTs can be almost instantly traded through the internet, rather than taking significant periods of time to find a physical buyer. 

Typically, most NFTs now in circulation are run on the Ethereum blockchain, despite the first token, coined by Kevin McCoy and Anil Dash in 2014, being associated with the Namecoin blockchain and sold equivalently for 4 USD. The value of each token is decided by the underlying value of the asset that is being bought, including but not limited by its meaning, ownership history, and cultural significance. For example, the 2011 meme phenomenon “Nyan Cat” was sold as an NFT in 2021 for over 500,000 USD. This characteristic, combined with the convenience of instantaneous transactions, means that these tokens can often be taken advantage of in an effort to raise money. Recent news announced that the Ukrainian government is currently in the midst of planning an NFT collection depicting the war with Russia, with all money raised to be dedicated to supporting the Ukrainian war effort against Russia. 

A major  criticism of  NFTs  is that it is nothing but a fad-bubble ready to pop, built by the “hype” created by a COVID-induced slowing economy and a population falling into even deeper boredom during lockdowns. Though it is true that NFT trading has already become much less mainstream than it was at the beginning of this year, it is unwise to ignore the new financial opportunities that these tokens have created, from their potential to partially drive stagnating economies to the transformation of our cultural icons into tradable assets. Moreover, NFTs certainly open a new medium for artists to express themselves as well as giving a “non-counterfeitable” alternative to trading physical assets. As such, we must be prepared for what the future might hold for such a new and unique market.