An NFT, or non-fungible token, is a unique digital representation of a good — for our purposes, a work of art. It’s akin to a certificate of authenticity or a deed and it’s recorded on a blockchain (more on that momentarily). Typically (forget art for a minute), an NFT represents something in digital form that you might not previously have thought of as a good: Jack Dorsey’s first tweet, for instance, or a clip of TV footage from a basketball game, or a pixelated cartoon ape in the form of a jpeg.

Ah, yes! You’ve heard of Bored Apes and CryptoPunks? These rudimentary digital illustrations were minted as NFTs, released in batches of 10,000, then traded as collectibles. CryptoPunks helped kick off the NFT craze. They usually sell for between $350,000 and $500,000, but one has fetched $11.7 million, and Bored Ape NFTs, which were released more recently, are also selling in the millions.

An NFT can be minted (i.e. registered on a blockchain) from almost anything: a virtual racing car inside a video game, a photo of Harry Styles’s cardigan or a work of digital art.

What is a blockchain?

A blockchain is a digital database, most often in the form of a public ledger. It stores information across a network of computers. Transactions on a blockchain can be verified without the need for any central authority, like banks or governments, and are supposed to be impossible to change, hack or corrupt. Each transaction is time-stamped and added to a growing chain of blocks of data.

What is the point of an NFT?

Creating an NFT does two things: It provides proof of ownership and it guarantees scarcity. The scarcity is really the key part. If you want to sell something that exists only digitally, the problem is that all things digital can be infinitely copied. NFTs don’t stop the copying. But they allow you to distinguish the copies from this one, notional “original.” And they prove, through the ledger, that you own it.

Until, of course, you sell it. And that’s the real point. By minting something as an NFT, you’re creating a commodity.