A woman art gallery owner is holding a computer tablet and looking directly at the camera.
NFTs are digital assets that represent ownership of a particular item. Some businesses are integrating NFTs into their loyalty programs or using NFTs to sell event tickets. — Getty Images/Marc Romanelli

NFT is an acronym that stands for non-fungible tokens. NFTs are unique digital assets that represent ownership of a particular item. For many, that explanation is still confusing. Let’s dive into the basics of NFTs and how they could impact your business.

What is an NFT?

First, some background. In economics and finance, "fungible" refers to the characteristic of an asset where its individual units are essentially interchangeable. One unit of a fungible asset can be directly replaced by another unit of the same asset without affecting the value or utility of the asset. For instance, a $1 bill is interchangeable with any other $1 bill.

When something is considered non-fungible, it’s unique and can’t be replaced by something else. The original Mona Lisa, for instance, is not interchangeable with a print of the famous painting.

Non-fungible tokens follow the same principle. Each NFT is unique and cannot be directly replaced by another NFT. An NFT can represent a unique piece of digital art, music, or other collectible.

[Read more: What Businesses Need to Know About Non-Fungible Tokens]

How do NFTs work?

NFTs are created through a process known as “minting.” Someone creates an original piece of content, such as an image, audio clip, video, or GIF. They set up an NFT wallet and upload the content to the blockchain.

“At a very high level, most NFTs are part of the Ethereum blockchain, though other blockchains have implemented their own version of NFTs,” wrote The Verge. “Ethereum is a cryptocurrency, like bitcoin or dogecoin, but its blockchain also keeps track of who’s holding and trading NFTs.”

In addition to using a blockchain, the creator will need to choose an NFT platform — a full-service marketplace where creators and customers list, sell, and buy NFTs. Once the NFT is created and in a digital wallet, the creator will hit the “Sell” button on the platform of their choice, list the price, and determine how long they want the sale to last.

NFTs are still relatively speculative and worth watching for the next few years as the landscape evolves.

What’s the difference between cryptocurrencies and NFTs?

NFTs and cryptocurrencies are both digital assets that are stored on a blockchain, but they have some key differences. Cryptocurrencies are primarily used as a form of payment or investment assets. NFTs are used for a wider variety of purposes, including representing ownership of digital art, music, videos, and even virtual land.

Cryptocurrencies and NFTs do have some overlap beyond using the blockchain. ​​NFTs and cryptocurrencies both represent digital ownership and decentralized economics. Fans of these technologies favor the transparency, immutability, and autonomy that these assets represent.

And both NFTs and cryptocurrencies have attracted significant attention as speculative investments. Their prices can fluctuate dramatically based on perceived value and market sentiment.

How do NFTs relate to small businesses?

The most famous NFTs relate to digital works of art, but the number of use cases for NFTs grows every day. Some businesses integrate NFTs into their loyalty programs, sell event tickets in the form of NFTs, or use these tokens to protect intellectual property.

NFTs can also open a new revenue stream for your business. NFTs can be configured such that your business receives revenue every time it is sold. That means a single NFT could provide passive income or new customer leads for years to come. “A new local cookie business could have a grand opening special where the first 100 people to buy an NFT would get a free cookie each week for a year,” wrote Forbes.

NFTs are still relatively speculative and worth watching for the next few years as the landscape evolves. In today’s marketplace, NFTs aren’t for the faint of heart. They come with fees, risk, and a steep learning curve. “If you just have the vague idea that you want to make an NFT because seemingly everyone is doing it, there are a few considerations you may want to take into account,” wrote The Verge.

Spend some time learning more about NFTs to see if they’re right for your business.

[Read more: How to Monetize the Metaverse: Big Brands' Tech Partners Share Tips]

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