Non-Fungible Tokens (NFT) Megathread

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There has been an influx of questions related to Non-Fungible Tokens here on ELI5. This megathread is for all questions related to NFTs. (Other threads about NFT will be removed and directed here.)

Please keep in mind that is **not** the place for investment advice.

**Do not ask for investment advice.**

**Do not offer investment advice.**

**Doing so will result in an immediate ban.**

That includes specific questions about how or where to buy NFTs and crypto. You should be looking for or offering explanations for how they work, that’s all. Please also refrain from speculating on their future market value.

[Previous threads on cryptocurrency](https://www.google.com/search?source=hp&ei=8dRMYN7VA5HgxgHVgJjIAQ&iflsig=AINFCbYAAAAAYEzjAYhPbtW3NtqQR7QGpzW3l3pV3hc_&q=site%3Areddit.com%2Fr%2Fexplainlikeimfive+crypto&oq=site%3Areddit.com%2Fr%2Fexplainlikeimfive+crypto&gs_lcp=Cgdnd3Mtd2l6EAM6CAgAEOoCEI8BOggIABCxAxCDAToFCAAQsQM6AggAOggILhDHARCjAjoLCC4QsQMQxwEQowI6BAgAEAM6AgguOgsILhDHARCvARCTAjoICC4QsQMQgwE6DgguELEDEIMBEMcBEKMCOgUILhCxAzoOCC4QsQMQxwEQowIQkwI6BAgAEAo6BQgAEMkDOgUIABCSA1CgCFiUYmCkgAFoCnAAeACAAc8BiAGpFZIBBjQyLjMuMZgBAKABAaoBB2d3cy13aXqwAQg&sclient=gws-wiz&ved=0ahUKEwieku3hxa3vAhURsDEKHVUABhkQ4dUDCAg&uact=5)

[Previous threads on blockchain](https://www.google.com/search?source=hp&ei=BdVMYPjdD-eLwbkP29SG6As&iflsig=AINFCbYAAAAAYEzjFWaH1jXfddRljjg4ZIUpUk6dyUzY&q=site%3Areddit.com%2Fr%2Fexplainlikeimfive+blockchain&oq=site%3Areddit.com%2Fr%2Fexplainlikeimfive+blockchain&gs_lcp=Cgdnd3Mtd2l6EAM6CAgAEOoCEI8BUNUDWJcZYKUbaAFwAHgAgAF5iAGoBZIBBDExLjGYAQCgAQKgAQGqAQdnd3Mtd2l6sAEI&sclient=gws-wiz&ved=0ahUKEwi49L3rxa3vAhXnRTABHVuqAb0Q4dUDCAg&uact=5)

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Can someone explain what on earth this whole thing is about lol

This comes down to what is meant by *fungibility*. Basically, when we describe something as *fungible*, what we mean is that you can readily replace it with something equivalent and that’s fine for everyone concerned. Take a dollar bill, for example. We say it’s fungible because if someone rips up a dollar bill in your wallet, they can replace it with another dollar bill and you’re no worse or better off: both of those dollar bills spend the same. Similarly, one share of Apple stock is worth the same as any other share of Apple stock. It doesn’t really matter which one you have, because from the perspective of being able to get value from it, number 304 is the same as number 3,539. One 1kg lump of pure gold is functionally the same as another 1kg lump of pure gold, if you’re using it as a store of value. They’re designed to be equivalent and interchangeable.

However, now imagine the lucky dollar bill you have that you saved from your first paycheck — the one you believe brings you good luck, [Scrooge McDuck style](https://disney.fandom.com/wiki/Number_One_Dime). If someone rips up that bill, then replacing it with another dollar just isn’t going to cut it. It’s no longer a *fungible* item.

So now imagine something like a book. You can have a fungible copy of a book (any mass-market paperback is pretty much interchangeable with any other, after all; if all you’re buying is the text, you’re fine). However, you can also have *non*-fungible copies of a book — like, for example, a first edition with a limited cover and a signed bookplate from the author. Once those are all sold, you’re out of luck if you want to get one. They’re just not making any more. This has been a big selling point for physical media for decades, with collectors — and people willing to pay a premium — paying more to get that unique extra, even if they’re not *technically* getting more out of it. (It’s not like byuing a special edition of a DVD with extra commentaries and special features, for example.) This is the reason why an original Picasso costs so much more than even the most skilled reproduction. You’re not just paying for the look of the painting, but for its history and provenance. You’re paying for the fact that it’s a Picasso.

But how does that work with the shift towards electronic media, such as digital art and ebooks? After all, the whole *point* of digital media is that (in theory at least) it’s infinitely reproducible. My copy of an ebook is quite literally an identical copy of your copy, right down to the same ones and zeroes. You can’t really have a collector’s edition of an ebook, right? How do you have something *special*, given the technology that allows you to create an exact copy in the time it takes you to press Ctrl+V?

This is where [blockchain](https://en.wikipedia.org/wiki/Blockchain) comes in. Remember how, with cryptocurrency like BitCoin and Ethereum, the whole point is that you can use what’s basically a giant list to keep track of where the money is, and who owns what? You can use that same technology to ensure that you own a ‘limited edition’ version of a creative work that, because it’s digital, would otherwise be infinitely reproducible. Just like the person with the limited-run edition of their favourite novel on their bookshelf, or an original painting by their favourite artist, you have a token that says (effectively) ‘I bought one of only 200 limited edition versions of this piece, and no matter how many times the piece itself is copied, there will only ever be 200 of these tokens. As a result, it is special.’

For some people, it’s for bragging rights. For some people, it’s to support their favourite creators by buying a ‘premium’ version that’s unique to them (or certainly more unique). For other people, it’s an investment; as with any good where only a limited number exist, they may expect it to increase in value over time, so it can be sold on.

In short, it’s a way of applying some of the limited edition value of physical objects to the digital marketplace by creating an artificial scarcity.

What I don’t quite understand is how new ntf’s get added/authenticated, because I thought the whole idea of the blockchain tech was to stop people adding to the ledger (idk the proper term for it). And then assuming you can ‘add to the ledger’ for new works, how does it then distinguish between new works and false replicas?

I’ve been trying to understand this all day and every time I think I’m getting close I get lost again and feel like an idiot.

As far as I understand Nft users:
1) steal art, or the artist who has decided to do this, makes art.
2) use the blockchain to create a limited amount of a digital thing that would otherwise be infinite
3) sell big bc exclusive
4) kill the environment because of electrical consumption

What I’m really struggling with is the concept of tokens and hashes. How do they add a token? Are they crypto mining for ownership and hoping a token that matches something about the arts footprint is uncovered? Are the hashes and mining just to produce of more of the digital copy of the art?

(I’m not even fully sure what a hash is please help. I only learned what a blockchain was this morning)

Can someone explain what is means to actually “own” a NFT of a file/tweet/art/etc?

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for a durable good, from a collectable card to a house, the owner has control. they can hide it, destroy it, decide who gets to see it, charge rent (either by admission, viewership, or actually loaning of the good itself), etc.

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Now you take a NFT of a popular piece of art readily found on the internet. You don’t get exclusive right’s to its use, you don’t get control over the asset, you don’t have copyright over it, etc.

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So what are you “buying” with a NFT. What does it mean to “own” an NFT of Random JPEG XYZ?

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Thanks!

Can you do trading on ETF like you can on crypto? Or do you need to manually choose individual art pieces?

I don’t understand how NFTs affect the environment. It apparently takes a lot of computers a lot of electricity to make an NFT. But what are they doing? Why is this particular type of work more harmful to the environment than, say, [email protected], which also made computers keep running full-time? What is the “mining” specifically, that causes environmental damage?

Thank you.

So as an artist, if someone places an NFT on my work, does that mean that it is theirs now? Do they profit off my work? Is my work universally now known as theirs?

Also, do I need place NFTs on my own art now to really claim it as mine?

Ok, I’ve read some articles, all the answers here and I think I pretty much understand all of this except for one thing…

What exactly does link the NFT to the actual object / thing / bits that it is representing? Nothing, right?

It is just an agreement between humans that this NFT is for this .JPEG? A purchase contract of a sort?

But the .JPEG is by its very nature completely fungible, because that is how computers work. No set of bits ever gets really moved or is original. It is all just copy of a copy of a copy… Sot here is no possible link between the NFT and the so called “original”. There is just the “NFT” and that is the thing by itself?

And considering the above this means that someone can produce an infinite number of NFTs for the same .JPEG..?