What is NFT? How does it work?

Non-exchangeable tokens (NFTs) are unique digital assets that cannot be replaced by similar assets. Unlike bitcoin, which is fungible and the same in value, each NFT is unique. The Financial Action Task Force (FATF) defines NFTs as "digital assets that are unique and non-interchangeable, used as collectibles rather than as payment or investment instruments".

Practical application and regulation of NFTs

According to the FATF, unique, non fungible digital assets are used as collectibles, not as payment or investment instruments. It is important to consider the actual use of NFTs, not just their name. Some digital assets may be classified as virtual assets (VAs) if they are used for payment or investment purposes, despite their original purpose.

Some NFTs are digital representations of other financial assets that are already subject to FATF standards. Such assets are excluded from the definition of virtual assets, but are considered financial assets. With the rapid development of the virtual asset market, it is important to approach regulation in a functional manner, especially with respect to NFTs and similar digital assets. Countries should assess the application of FATF standards to digital assets based on their actual use.

NFT technology and applications

NFTs are unique cryptographic tokens on the blockchain that cannot be copied. They can represent real objects such as works of art or real estate, making transactions more efficient and reducing the likelihood of fraud. NFTs can also serve to prove identity or ownership.

Unique features of NFTs

NFTs are characterised by unique identification codes and metadata, making them non-interchangeable. Unlike cryptocurrencies, which can be freely exchanged, each NFT is unique. This makes them similar to digital passports, as each contains a unique identifier. NFTs can be combined to create new unique tokens, which adds additional value to them.

Much of the NFT market is focused on collectibles such as digital artwork, sports cards, and rarities. For example, the NBA Top Shot platform allows you to collect digital NBA moments, some of which sell for millions of dollars. NFTs change the approach to digital assets by making each token unique and irreplaceable.

Conclusion

NFTs are crypto-assets on the blockchain with unique identification codes and metadata that cannot be exchanged for equivalent tokens. This distinguishes them from fungible cryptocurrencies, which are identical to each other and can be used for commercial transactions. Cryptocurrencies, like physical money, are fungible, making them convenient for digital transactions.