Non-Fungible Tokens (NFTs)
Part of: Prelims and GS-III Economy
Context: French luxury fashion brand Hermès is suing an American digital artist who created the MetaBirkins series of NFTs (Non-Fungible Tokens), a rapidly growing part of the cryptoworld.
- An NFT is a unique, irreplaceable token that can be used to prove ownership of digital assets such as music, artwork, even tweets and memes.
- The term ‘non-fungible’ simply means that each token is different as opposed to a fungible currency such as money (a ten-rupee note can be exchanged for another and so on).
- Cryptocurrencies such as Bitcoin and Ethereum are also fungible, which means that one Bitcoin can be exchanged for another.
- But an NFT cannot be exchanged for another NFT because the two are different and therefore unique.
- Each token has a different value, depending on which asset it represents.
- NFT transactions are recorded on blockchains, which is a digital public ledger, with most NFTs being a part of the Ethereum blockchain.
- NFTs became popular in 2021, when they were beginning to be seen by artists as a convenient way to monetise their work.
What are the other reasons for which NFTs are in high demand?
- NFTs are a part of a new kind of financial system called decentralised finance (DeFi), which does away with the involvement of institutions such as banks.
- For this reason, decentralised finance is seen as a more democratic financial system because it makes access to capital easier for lay people by essentially eliminating the role of banks and other associated institutions.
News Source: IE