An NFT is a Non-fungible Token
Fungible means replaceable, indistinct. Like a grain of sugar, you’d never know or care which one is which so long as your tea is sweet. Non-fungible is the opposite. It very much matters what happens to the thing you have because there aren’t any others. Pets are non-fungible—they’re unique. [1]
Tokens are representations of things. That is, something real exists, and something else is used to represent the real thing. Imagine a live hippo for example. There’s the hippo himself (let’s call him Hank), and a coin with Hank’s face on it. The coin represents Hank. If you owned Hank, you could use the coin as a token of your ownership. That way, when you show up to the hippo owners club and demand admission, instead of bringing Hank you could simply bring your coin. But what if someone could make a coin just like yours? Their token of ownership would become equally valuable, and the two coins would become interchangeable—fungible. The point of non-fungible tokens is to prevent that.
Non-fungible tokens (NFTs) are a way to represent and prove peoples’ unique relationship to something important. For a given blockchain, “people” are digital addresses and “something important” is data. “Uniqueness” is enforced through cryptographically-secured, consensus governed ledgers—aka blockchain. [2] So an NFT is a unique token that represents a relationship between data and an address on a blockchain.
Why Should I Care?
Whoever can prove that they own an NFT can thereby prove their relationship to the data at hand. If the data is an image of Nyan Cat, the NFT could prove ownership. If the data is a certified record of a livestreamed lecture, the NFT could prove attendance. [3] If the data is a list of names published by the Video Game Association, the NFT could prove membership. In a world increasingly governed by our relationships to data, knowing what you can prove about those relationships is limitlessly valuable.
Just as with other economic technologies, NFTs are a building block to more complicated interactions. As digital asset marketplaces become universal, virtual worlds grow in popularity, and digital identity substitutes for real-world identity more and more often, the technology behind those changes will be crucial to understand.
[1] Except for Fido, who is immortal and reincarnates in the fish bowl every time he’s flushed.
[2] For the basics of blockchain, see What the Hell is Blockchain and Why Should I Care?
[3] These NFTs are called POAPs.