An NFT, or non-fungible token, is a unique digital contract on a blockchain that can never be duplicated, hence the name "non-fungible".

Conversely, if Anna has 1 Ether (ETH) and John also has 1 ETH, these two coins are interchangeable in the same way that a $1 bill in your pocket is worth exactly the same as $1 in someone else's wallet.

But let's say you want to exchange passports with someone. Your passports look identical on the outside, but each contains unique information about its owner. The information in your passport will likely be useless to the other party in the trade (unless they are scammers). In other words, passports are "non-fungible".

The same logic applies to NFTs. Each NFT is a unique "crypto-currency"; only one can be issued, just like your passport.

So, what can you do with an NFT?

NFTs are digital contracts that prove ownership of a good, which can be physical or digital, such as a property deed, a video game asset, or artwork.

The most expensive NFT sold to date was "Everydays: The First 5000 Days" by artist Beeple, which sold for $69 million.

What motivates people to spend so much money on something they cannot physically hold in their hands?

Imagine you have a rare baseball card. The card itself has close to zero intrinsic value; however, its value stems from its rarity and demand among a community of collectors. Demand among NFTs works similarly: they are all unique and offer their owners an unprecedented sense of ownership.

A common argument against owning an NFT of an image is that you can easily find it online and download it for free. That cannot be denied, but the catch with NFTs is that you can now participate in a bidding war to become its owner at an auction if you wish.

Where do these astronomical prices come from?

The natural market dynamics of supply and demand determine the value of an NFT. If thousands of people are willing to buy an NFT artwork (and engage in a bidding war), its value will only skyrocket and go to the highest bidder.

NFT art has dominated the conversation around this technology, but it is much more than just buying and selling art. The technology boasts many promising use cases, which we will discuss in another article.

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