Explain NFT to a 5 year old (ELI5)

Editor’s Note: This “ELI5” article series is for beginners who enter the world of cryptocurrencies, DeFi, NFT and Web3 with a lot of questions. ELI5 refers to a well-known English acronym that means “Explain to me as if I were five years old.” The goal is not to infantilize the reader, but simply to give him the keys to understanding, so that the complex vocabulary of the cryptosphere in the broadest sense becomes, as if by magic, child’s play!

The term NFT has become extremely popular in 2021. Anyone familiar with the cryptocurrency universe knows what it refers to. Unfortunately, a beginner can get lost quite quickly and therefore it is necessary to explain this to him step by step.

So that the name NFT is no longer a mystery to anyone, let’s look in general terms what this term refers to. Then we will analyze its usefulness and all the enthusiasm that this new niche in the cryptocurrency universe has generated in 2021.

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Definition of a non-fungible token

NFT is actually an abbreviation of the English term Non-Fungible Token. In French, this translates to non-fungible token. There are two types of tokens in the cryptocurrency industry. Non-fungible and “classic” ones that refer to a specific digital asset such as 1 BTC, 1 ETH or 1 XRP.

The peculiarity of NFT is that it exists in only one copy. If you send, for example, 10 ETH to another person, then you will have 10 ETH less in your own account, but you do not know which ones you sent.

When you transfer an NFT, you are removing a specific cryptocurrency from your storage wallet that is related to a specific asset. It cannot be replaced by another. It’s like sending money to a friend. If you are using coins, then any coin will do. On the other hand, if it is a unique collectible item, then you can only send it.

Kylian Mbappé has joined Sorare, a fantasy football platform using NFT.

What exactly do these tokens guarantee?

The fact that NFT is unique is very important. This proves that a person owns a certain asset. It could be something digital, like an artistic NFT, or a non-fungible token could refer to something that exists in everyday life.

Thus, if you transfer a digital whiteboard to another person by sending them the corresponding token, this guarantees that the whiteboard will now be in their possession and this object no longer belongs to you.

Thus, the NFT can guarantee the ownership of something to the person who owns it. As long as the non-fungible token is in his hands, he owns it. If the NFT is transferred to another person, then it now belongs to that new person.

Can we use it as irrefutable proof of ownership?

To work, a non-fungible token must use the blockchain. It is the latter that acts as a trusted third party, confirming that the transaction between two people was successful or that the person actually has the NFT they claim to have. Currently, the Ethereum network and its ERC-721 tokens are most commonly used for non-fungible tokens.

The fact that a transaction recorded on the blockchain is irreversible serves as proof of ownership. It is not possible to change the information presented on it and anyone can then prove that they actually own the NFT they claim to own.

Even though non-fungible tokens are still very new, they will have specific uses in everyday life. For example, a notary public can verify that a person owns a house through NFT, or ownership of a real work of art can be materialized with a non-fungible token.

Olympia released its first “The O’Gs” collection of 250 membership cards in NFT format.

Are the prices of some non-fungible tokens justified?

Throughout 2021, the prices of many NFTs have skyrocketed. As a result, we received low-quality digital works, which were sometimes sold for several hundred thousand dollars.

In our opinion, this was clearly a very speculative market, completely out of touch with reality. This was also observed at the end of the year and at the beginning of 2022. Most prices have plummeted and the fashion appears to have been temporary.

However, NFTs backed up by something specific in real life can have quite justifiable value. So, if you own a house worth $10 million, it’s quite normal that the corresponding non-fungible token will be worth the same price.

Exclusible is a dedicated marketplace for high quality NFTs,

NFTs: Things to Remember

NFT is a special type of token. Unlike classic tokens that are interchangeable with each other, non-fungible tokens refer to something unique.

The main interest of this technology is to be able to guarantee someone’s ownership of a particular asset. To do this, the blockchain acts as a trusted third party, ensuring that ownership of the asset belongs to the person who owns the respective NFT.

2021 was the year of non-fungible tokens in the crypto universe. However, this created a huge bubble that eventually burst, causing the last people to enter the industry to lose a lot of money.

Read more articles in our special series for beginners:
Bitcoin (BTC) explained to a five-year-old child (ELI5)
Blockchain explained to a five year old child (ELI5)
Cryptocurrency explained to a five-year-old child (ELI5)

Discover more crypto terms

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