Unless you’ve been living under a rock, you’ve probably stumbled across the acronym “NFT” floating around the internet. But what is an NFT exactly?

NFTs Are Digital Collectibles (ART) With a Record Of Ownership

Art is both valuable and subjective.

It’s hard to determine a painting’s value because beauty is in the eye of the beholder. Often we default to looking at a painting’s price history for guidance, which is generally influenced by its rarity (how many of them were painted by that artist) or fame (is it the Mona Lisa or Jennifer Nobody) or other factors.

In the past, that record of ownership allowed us to trace physical paintings back in time to make sure they’re authentic and not forged. If backtracking fails, there are tests that can be administered to the physical paint and canvas itself to verify age, etc in order to identify a fake.

Then Came Computers…

As life began to contain more and more screens, many things moved from a brick-and-mortar landscape to a more digital format. Art is no different, and many artists work completely digitally.

It’s hard to test the paint of digital art, which is where NFT technology comes into play. “NFT” is an acronym that stands for “Non-Fungible Token”.

There are some clues to understanding what exactly NFTs are in the definitions of those expensive sounding words. To understand this concept it helps to look at the definition of fungible first:

“Fungible”: (of goods contracted for without an individual specimen being specified) able to replace or be replaced by another identical item; mutually interchangeable. -Oxford Dictionary

So then if NFTs are “non-fungible”, they are NOT necessarily interchangeable with one another. They are unique.

More completely, NFTs are unique digital assets that are capable of being owned. Does that mean that every NFT has different art? No.

BUT each NFT is different from all others, even if it has the same art and is just a different edition number.

Now that we have a better understanding of what an NFT is, we can take a deeper look at how and why they exist. Ownership of each individual token is tracked through blockchain technology and logged in a public ledger, making it virtually impossible to create a fake.

For a simple understanding of how the blockchain works, check out this simple 6 minute explainer video:

Because ownership is so thoroughly and unalterably recorded, it’s very difficult to commit fraud with NFT technology. NFTs exist to mitigate fraud, provide a means of verifiable digital ownership, and are now developing into a myriad of other use cases.

Types of NFT Projects

Generally NFT art falls into two major camps:

There are others, but the overwhelming majority of projects currently on the market could be placed in one of these two buckets.

1. 1/1 Collections

1/1 collections are most like traditional art: they’re a piece that an artist created digitally and they usually look obviously unique. Just like a painting on a canvas, 1/1s are their own work and are sold as such. They can be part of a “collection” in the sense of a theme, like “10 pieces of spring”, but they are each uniquely created.

2. Generative NFT Collections

Then there are “generative” NFT collections, which are essentially a basket of hand-drawn traits (think: hair color, sunglasses, skin color, and hats of the Crypto Punks) that are all assigned a rarity and randomly “generated” (or assembled) by a computer program.

“Generative art is an expression currently used a lot in the context of NFTs. NFTs have recently become a new way of owning a piece of generative art, and even a means to create pieces of generative art via smart contracts.” – Medium

So while each aspect of the picture is hand drawn or created by an artist, computers create the finished project by assembling all the pieces all together. Pretty neat huh? The result is a large number of unique artworks, each with its own smart contract behind it, verifying its authenticity on the blockchain.

3. Other NFT Projects

There’s a third way that NFTs are sometimes divided up within collections that bears mentioning. Sometimes a project such as VeeFriends will have a number of “core” tokens, say a set of 20, that all look exactly the same except for their edition number. That difference of edition number allows them to be uniquely traced on the blockchain and may even make one “core” token worth more due to its history in the future.

What if you could own an NFT that looks the same as 20 others, but it’s verified that the exact one that you hold used to belong to, say, the Queen of England.

Because it’s an NFT, you could actually prove it. That’s where this technology and the valuation of NFTs could get really interesting in the future.

NFTs Are Business Plans

NFTs, when they’re not from an individual artist, are often created in a “project” environment. A group of people assemble around an idea for an art creation, and an NFT team is born.

These projects often have an end goal of some sorts, which usually ends up being a form of fundraising from investors to use in creating a better experience for people that buy and hold the project’s NFT.

To accomplish its goals, a project usually follows something called a “roadmap”, which is essentially a business plan. It details the plans that the project has and usually serves as a rough outline of how to get there.

Sometimes it involves giving a Tesla away to holders, or promising an in-person club that requires the NFT for entry.

Other times the project’s NFT promised to be used in an upcoming game that’s in development, or as an avatar in the Metaverse when it’s finished being created.

The Takeaway For Investors – What Is An NFT?

This roadmap seems like a great idea in theory, except there is no way to verify that the goals of the project are even possible, let alone if the team behind the project is qualified.

At this point there is virtually NO regulation in this space, so it’s up to the investor to decide based on their own research which teams are legit and which ones are just looking to make a quick buck.

Keep in mind that some projects ARE qualified. Take a peek at BAYC’s roadmap 1.0. They have just about everything crossed off. They MADE it to the pot of gold and will go down in history as a flagship NFT project, pioneering what’s possible. They’re also backed by real developers and a real software company called Yuga Labs.

And their promises are not outlandish.

Crypto Punks NFT project is another example of a flagship project with an actual company behind it called Larva Labs, which has also had great success.

Both projects have a team of dedicated developers (and almost certainly other talent) behind them. Most of the other NFT projects on the market today can’t say the same, so buyer beware.

NFTs Are Philanthropy And Fundraising

While some projects make wild promises, other projects are built by an extremely qualified team. An interesting feature of many projects currently out there in the space is the implementation of charity or philanthropy in the roadmaps.

While some “attach” themselves to a cause as a marketing ploy, dedicating a portion of proceeds to an existing charity as a donation, one project on our radar is taking a different route.

This particular project, which we will refer to as “H” and will remain anonymous for now, is selling a smaller number of NFTs that are geared towards providing FREE medical treatment to underserved and impoverished countries. “H” is created and led by an actual practicing surgeon, who intends to use the project to fund their practice serving people who would never be able to afford such care.

The project is focused on restoring the health and well-being of burn victims, and making a real tangible difference.

As projects like these develop, we look forward to seeing how NFT technology continues to evolve and touch more lives.

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There’s a lot to learn with NFT technology. Hopefully this provides a little context on what they are, on the state of the market right now, and where they could be going in the future. Feel free to reach out with your NFT and Crypto related questions!