What Is an NFT?

This article was first published on Chainlink

What Is an NFT?

The most widely recognized application of blockchain technology is the creation of cryptocurrency, such as Bitcoin and Ether, which enables users to transfer value peer-to-peer without a rent-seeking middleman. Programmable smart contracts expanded upon this concept by empowering anyone in the world to create their own fungible tokens, such as stablecoins, commonly used in the DeFi ecosystem. The latest evolution of this innovative model of digital value exchange are Non-Fungible Tokens (NFTs)—blockchain-based assets that represent a unique item such as a digital artwork, in-game virtual goods, rare collectibles, or any other digital/physical asset.

In contrast to fungible assets like dollars, where each unit is identical and fully interchangeable, non-fungible assets like NFTs are unique from one to another as they represent ownership of a specific asset. This ownership is validated and tracked using a public blockchain network, allowing users to verify the legitimacy of any NFT and track its provenance all the way back to its origin. NFTs therefore can be best described as a “certificate of authenticity” issued by the original creator which provides cryptographic proof that the NFT holder has ownership of the official copy of the unique asset.

NFTs provide a wide range of benefits such as allowing artists to monetize their digital artwork, enabling the creation of provably rare in-game items, supporting a new ecosystem of digital collectibles, tokenizing real-world assets to increase liquidity, and much more. In this article, we will provide context on the NFT economy, explore the various types of NFTs that exist, and explain the importance of verifiable randomness for provably rare NFTs.

Growth of the NFT Economy

NFTs were first popularized in 2017 with the launch of CryptoKitties, a decentralized application on Ethereum that allows users to breed and collect digital cats. Now with the launch of higher-performance blockchains, ...

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