The Overview
We explain (briefly) what crypto is, why it is special, and why that is a good thing. Lastly, discuss what NFTs are. No technical jargon. Nada.
I. Crypto
What is it actually
Cryptocurrency is just records in a database. We call these records transactions. If you add up all the transactions associated with a certain address (which usually represents a person), you get how much crypto they have. Like 1, or 3,471, or 0.231. So far so good.
What is so special about it
Three things, all to do with the fact that this is a special kind of database. We refer to such a database as a blockchain. You will see why just below.
Unlike a Word document where you can edit text freely, once data is added to this database, it's locked in using cryptography.
You can't go back and tamper with it, it is engraved in the strongest possible meaning of the word. This is a huge deal, we didn't have this before.
Every new record is added in sequence, and each one is cryptographically linked to the previous one. This is why it's called a blockchain, its blocks (i.e. batches of transactions) in a chain (i.e. cryptographically linked together) that can only grow.
It's an ever-growing history of verified transactions. The last point clarifies what "verified" stands for in this context.
Before anything gets added, it must be validated by the network. This means the system checks it's valid and not fraudulent. Kind of like being audited, but built into the live, operating system itself. This happens as a natural part of adding new transactions to the blockchain.
No single person or institution is supposed to have significant control over this activity: if indeed no party has significant control, we call the blockchain "decentralised".
Understanding exactly how these are achieved is difficult. If you are up for starting this journey, we recommend digesting The Long Read. This is a long and difficult piece however.
Why are these particularly good things
We currently pay significant costs for auditing systems after the relevant data entered into them. With blockchain, audit happens at the same time as data entering the system, making it much cheaper and more efficient.
...one more thing
When it comes to cryptocurrency, 1.4 of it or 3.9 of it is worth just the same as other records adding up to 1.4 and 3.9 records, respectively. They are interchangeable, one is just the same as the other (like with regular money). In other words, they are "Fungible". This becomes important when attempting to understand NFTs or "Non-Fungible Tokens".
II. NFTs
What is it actually
NFTs (Non-Fungible Tokens), like cryptocurrencies (which are Fungible Tokens), are records in a database and that database is a blockchain. This is where the similarity ends, because as opposed to cryptocurrencies where the records represent fungible things (Fungible Tokens), NFTs represent non-fungible things (Non-Fungible Tokens). Let's unpack this.
Fungibe VS Non-Fungible Things
This means that some things are fungible, and the cryptocurrency on a blockchain is exactly that. One unit of the cryptocurrency is the same as any other unit of the same kind. Just like with money. If you ask me for two dollars, I can hand you any two dollars from my wallet. You don't care which specific ones you get. That's what it means to be fungible: interchangeable, with no unique identity. Cryptocurrencies and money are both clear examples of fungible things.
NFTs, on the other hand, are non-fungible. That means one is not the same as another, each one is distinct. This is just like real-world assets. A car is not the same as a house, and a house is not the same as a share in a company. Each item has its own features, condition, and value. That's what makes it non-fungible. You can't just swap one for another as if they were identical.
Non-Fungible Things (technically "tokens", in short "NFTs")
NFTs work the same way: they're unique, but they can still be priced, bought, and sold using fungible currency. Real cash, digital cash on your banking app or cash that exists within and ongoing, "always-on" framework of having a network of unrelated computers recording transactions in blocks. They would then link (chain) them together using cryptography, so that changing anything about them is virtually impossible. In other words, they exists in a blockchain.
For a concrete illustration of NFTs, and an explanation of how a truly unique digital item can exist on an efficient blockchain such as the XRP Ledger, see the piece focused on understanding Sapiens NFTs. This will be more technical.
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