How is NFTs Worth?

 NFTs or Non-Fungible Tokens have suddenly surged in popularity. NFTs are selling for thousands of dollars but these things look like it's just creating value out of air. I'm an economist and I want to help you understand the economics of the NFT Marketplace Website.

What gives them value and actually helps you see that the concept of NFTs has been around for a long time. And I think to understand the scale of what's going on here. We need a banana so NFT stands for a non-fungible token before. You can understand what and not is you need to understand what these words mean now token means that this is something stored on the blockchain.

But what does non-fungible mean and how it is different from something that is fungible when I think of fungible things the first thing that comes to my mind because I'm an economist is dollar bills are fungible? What that means is imagine I present two dollar bills to you I can ask you to choose one of them I can mix them up again and then say now which dollar bill do you want to have.

You don't care which one you have a dollar bill is a dollar bill there's really no way to distinguish them. Now some clever people are gonna be like well they have serial numbers on them. You can distinguish between two dollar bills and that's true but in terms of their use, they're indistinguishable now let's think of something that's NFT Marketplace in our house. We stand pokemon like we have pokemon all over the place pokemon are on our walls.

We've got Pokemon cards everywhere our family loves pokemon. Now if you look at these two pokemon cards they look exactly the same if I was to move them around you really couldn't tell me anything about these two cards. But as soon as I flip this card over you see that it's a holographic dark char Izard which is a decently valuable card.

And when I flip this card over it's a trainer which is garbage it is literally the worst thing that you can pull. They are so bad that you remember last year when we didn't have toilet paper because of the pandemic [Music] well at least they're useful for something the pokemon cards are essentially indistinguishable they are cardboard.

Yet it's by putting a little piece of information on the front of them that distinguishes that gives them value that makes it. So you can't exchange them it makes them non-fungible so an nft is a token on the blockchain that can't be easily exchanged. For something else it's very much like a trading card before we get into the economics of nfts.