Explain NFTs to a 5-year-old (ELI5)

Editor’s Note: This series of “ELI5” articles is for beginners entering the world of cryptocurrencies, DeFi, NFTs and Web3 with lots of questions in mind. ELI5 refers to the famous English acronym, which means “Explain me as if I were five years old”. The goal is not to infantilize the reader, but simply to give him keys to understanding, so that the cryptosphere’s complicated vocabulary in a broad sense becomes, as if by magic, a child’s play!

Concept NFT became extremely popular in the year 2021. Anyone who knows about the cryptocurrency universe knows what this refers to. Unfortunately, a beginner can find himself lost quite quickly and it is therefore necessary to explain to him this step by step.

Because the name NFT is no longer a mystery to anyone, we will see in broad outline what this term refers to. We will then analyze its applicability and all the enthusiasm that this new niche in the universe of cryptocurrencies has created 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. In the cryptocurrency industry, there are two types of tokens. The non-fungible and the “classic”, which refers to a specific digital asset, such as 1 BTC, 1 ETH or 1 XRP.

The special thing about an NFT is that it is only available in one copy. For example, if you send 10 ETH to another person, you will have 10 ETH less in your own account, but you do not know which ones you have sent.

When you transfer an NFT, you remove a specific cryptocurrency from your storage wallet that pertains to a defined asset. This can not be replaced with another. It’s like sending money to a friend. If you use coins, any coin will do. If, on the other hand, it is a unique collector’s item, then only this can be sent.

Kylian Mbappe joined Sorare, a fantasy football platform that uses NFTs

What do these special tokens guarantee?

It is very important that an NFT is unique. This proves that a person is in possession of a particular asset. It can be something digital, such as an art NFT, or the non-fungible token can refer to something that exists in everyday life.

If you transfer a digital art board to another person, sending them the corresponding token will ensure that the board is now in their possession and that the object no longer belongs to you.

An NFT can therefore guarantee ownership of something to the owner. 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 the new person.

Can we use that as irrefutable proof of ownership?

To work, a non-fungible token must use a blockchain. It is the latter that acts as a trusted third party by confirming that a transaction has gone well between two people or that a person actually has the NFT he claims to have. Currently, the Ethereum network and its ERC-721 tokens are the most widely 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 on it and anyone can then prove that he actually has the NFT that he claims to have.

Although non-fungible tokens are still very new, this will have concrete uses in everyday life. For example, a notary can certify that a person owns a house via an NFT, or ownership of an actual work of art can be materialized via a non-fungible token.

Olympia has launched its first collection “The O’Gs” with 250 membership cards in NFT format

Are the prices of certain non-fungible tokens justified?

During the year 2021, the price of many NFTs has exploded in total. We ended up with low quality digital works that were sometimes sold for hundreds of thousands of dollars.

In our opinion, this was clearly a very speculative market and totally separated from reality. This was also seen at the end of the year and at the beginning of 2022. Most prices have fallen sharply and maturity seems to have been only temporary.

However, NFTs supported by something concrete in real life may have a fully justified value. So if you own a $ 10 million house, it’s only normal that the corresponding non-fungible token will be worth the same price.

Exclusible is a specialized marketplace for advanced NFTs,

NFTs: what to remember

NFTs are a special type of token. Unlike classic tokens, which 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 specific asset. For this, blockchain acts as a trusted third party by guaranteeing that the ownership of an asset belongs to the person who owns the corresponding NFT.

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

Read the other articles in our special beginner series:
Bitcoin (BTC) Explained to a Five-Year-Old Child (ELI5)
Blockchain Explained to a Five-Year-Old (ELI5)
Cryptocurrency Explained to a Five-Year-Old (ELI5)

Discover more crypto vocabulary concepts

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