In essence, NFTs are non-interchangeable (unique) digital tokens whose authenticity is guaranteed by cryptography and blockchain technology, used to represent a specific asset. The use of the word “represent” is intentional: when one sells, buys or trades an NFT, what changes hands isn’t the asset itself (such as an image or a video), but the digital certificate that incontrovertibly attests to its transfer. The asset in question can be just about anything—as long as it is in a digital format.
Put another way, the NFT isn’t the asset itself (e.g., a photograph purchased online), but rather a sort of certificate of digital ownership, called a smart contract, which attests to the transaction and which indicates that specific photograph as unique and found at a certain web address.
If that same photograph is subsequently sold to ten different buyers, the original file will still be saved in the same identical place on the web; the only thing that will change is the purchase history of the NFT, which will then be modified to list all ten of the transactions that took place. This information, which is essentially the heart of the system, ensures that the only person who can then sell or exchange that photograph is the current owner.
Therefore, NFTs can be seen as a sort of statement or certificate of ownership that is encrypted and permanently saved on the blockchain (which, as you’ll remember, is a decentralized network distributed across different computers around the entire world).
But what would happen if, in the meantime, 1,000 copies of that very image were to be created online? That’s easy. Whoever owns the NFT essentially owns the original version of the photograph, digitally signed by the artist, which is quite different from downloading a regular-old copy of that image from the web—especially if we’re talking about a famous photograph or work of art.