DEFINITION: A “non-fungible token” (NFT) is a unique, digital data file that, through blockchain technology, can be owned and traded on the open market.
ETYMOLOGY: The adjective “fungible” derives from the New Latin adjective fungibilis, which in turn derives from the classical Latin verb, fungor, fungi, meaning “to occupy oneself,” “to perform,” “to undergo,” “to be affected,” or “to suffer.”
As an English word, “fungible” is of relatively recent origin, being first attested with this meaning in the early nineteenth century.
The word “token” derives, via Middle English, from the Old English word tācen, meaning “sign.”
The English word “token” is akin to the Old High German word zeihhan, meaning “sign,” and the Greek verb deiknumi, meaning “to show.”
USAGE: The word “fungible” means “interchangeable with other physical tokens of the same type with respect to a specific purpose.”
For example, US currency is fungible in that a $1 bill is interchangeable with four quarters so far as purchasing power is concerned.
Superficially, NFTs may appear to be similar to cryptocurrency. However, like physical currency, cryptocurrency is fungible.
Therefore, NFTs ought rather to be thought of as digital versions of unique physical objects that have traditionally been regarded as stores of value, such as autographed baseballs and other sports memorabilia, first editions of old books, Old Master paintings, and similar singular objects.
NFTs exist in the form of one-of-a-kind digital data files, which may include photographic, audio, and video elements.
The ownership and provenance of NFTs are assured through blockchain technology.
The market price at which each exchange occurs may also be included as auxiliary information associated with each block of the blockchain.
Despite the ownership and provenance authentication offered by blockchain technology, the legal system has not kept up with the growth of cryptocurrencies and NFTs.
Therefore, it must be understood that ownership of an NFT does not provide copyright or other intellectual property right protection that would be enforceable in a court of law.
NFTs have been widely criticized as an economic bubble and even as a type of Ponzi scheme.
In 2022, Bill Gates said he believes the economic performance of NFTs depends upon the so-called “greater fool theory,” meaning that only a fool would buy an NFT, but the reason why the price goes up is that each seller can always find a “greater fool” to sell to.