I have to admit that I missed the whole NFT (Non Fungible Token) craze that really started taking off last summer. I have never been one for collecting trading cards of any kind with the exception of Garbage Pale Kids in the 80’s when I was in 4th or 5th grade. There are only a handful of things I do collect and that is limited to vinyl records and books. So I mostly ignored it.
That is until I read about Unstoppable Domains and their .crypto domain, which is a NFT. That caught my attention. In using NFT’s to assign domain names, I had found one of the most practical and useful things a NFT could be used for.
But before I continue I’ll go over what an NFT is for the benefit of the uninitiated and I’ll try to give a clear thousand foot view as opposed to getting into the weeds on technology and details.
The term “fungible” means mutually interchangeable. When something is fungible, exchanging one for another of the same is equal on both sides. Fiat currency like the dollar is fungible. One dollar exchanged for another dollar is still a dollar. Likewise a paper dollar is as good as a digital dollar (credit).
Non-fungible on the other hand means something has exclusivity or even unique in some cases. A good example of something we are all familiar with that is non-fungible is your cars title. While you may have a silver 2001 Toyota Camry, so do millions of others. What makes your silver 2001 Toyota Camry yours is the title to it. The title is a claim of ownership of that specific Toyota Camry. The title makes your silver 2001 Toyota Camry non-fungible. And when you are ready to transfer ownership, you sign over the title to the new owner and the non-fungible chain of custody continues.
I hope those two paragraphs help you understand fungibility so far. Now lets take a closer look at Non Fungible Tokens as a concept.
By now you are likely familiar with what a blockchain is. In it’s simplest description a blockchain is a publicly available, immutable, general ledger. Transactions that go onto the blockchain are available for all to see. In the case of Bitcoin, the debits and credits of wallets are what is posted to the blockchain.
Likewise, NFT transactions are posted to a blockchain which is (for the most part as there are private blockchains) public. Contracts that are entered into agreement for pretty much anything one can imagine to conjure up for public consumption, can be made and posted as a NFT. Titles, deeds, birth records, death records, marriage and divorce certificates, anything you can think of that one would need to have exclusivity and be able to prove legally could be made into an NFT and even more so if you need to attach a physical asset to it.
NFTs also open up new opportunities for financial instruments that have never existed before. For instance in the real of real estate. It is now possible to take an income producing property and create a sort of REIT (for lack of better expression) where tokens are issued like shares, which allow people to invest in the property without owning the property, just a small share.
That probably sounds a lot like Mortgage Backed Securities and we all know how that ended in 2008. And I’ll be the first to admit that it is similar. However where they differ is that an RE NFT you would know the precise piece of property, it’s address, and every detail about the property; whereas with a MBS only brokers knew (not that they cared) what mortgages were bundled in the MBS.
So are they a fad or are they the future. I’ll weasel out of this and say both. The NFT art is likely a fad that may run it’s course. Only time will tell if those NFTs survive. However, just as Bitcoin and other cryptocurrencies will ultimately replace fiat, NFT’s at least have the potential and I would argue that they will eventually replace their analog counterparts.