July 4, 2022

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What is an NFT? The meaning of non-fungible tokens explained like you’re 5

11 min read

“What is an NFT?” It’s a question that’s been flooding Google’s search engine as people try to discover the meaning of the buzzword. NFT stands for non-fungible token, but what does that even mean? Well, before I can explain what “non-fungible” means, let’s dive into the definition of fungible.

“Fungible” describes a good that can be easily swapped for another good within the same asset class. For example, if I swap your $100 for my five $20 bills, you likely won’t say, “Hey, that’s not fair!” because they have the same value. As such, the US dollar is fungible. Cryptocurrencies like Dogecoin and Ethereum are fungible as well — you can easily exchange one Bitcoin for another without stepping on any toes.

What are NFTs? (Image credit: Snappa)

Non-fungible, on the other hand, describes a one-of-kind, unique good that can’t be readily exchanged for another good within the same asset class. Non-fungible tokens are also indivisible (i.e. they can’t be divided into smaller denominations in the same way that a dollar can be split up into four quarters). 

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