This is a video I did last year but I'm working on updating it this year. You can view it but I would recommend reading the text below as it's the most updated explanation I have, to date!
Most Updated Explanation I Have, To Date:
Recently answered a question explaining NFTs in r/AskReddit, figured that it might be useful to some of you here. Added in a section on the bottom, "Why This Matters to Business Owners"
Explaining it in plain english:
Imagine that I own a house and you want to buy my house. In order to do this, we'll have multiple steps in the process:
1. You will ask me to prove that I own the house
I will give you my "deed", a physical paper, which proves that I own the house. However, you might doubt that my paper is real (what if it's forged?). So, we'll say let's go ask the government.
2. A government agency will validate that my Deed is legitimate
The government office says, "yes, we checked the records and this deed is real, Chirag does own this house"
At this point, we have proven that I own the house. But...
3. I need you to prove that you have the money to pay me!
So, you'll go to the bank and either have them give you an official document that proves you're approved for a loan or you'll ask them for a banker's check.
Now, you know I own the house & I know you have the money...
4. We make a contract
In the contract, it says that on December 1, you will give me the money and I will give you the house.
5. On December 1: I get the check & you get a deed which now says that you are the official owner of the house
Plus, the government will update their files to make sure there's a clear record that the house is now yours.
Now let's translate this to NFTs, Crypto, & Blockchain
The Deed that proves who owns the house = The NFT
The money you paid me = Cryptocurrency
The government files that store all this information = The Blockchain
This is very simplified but it should give you a starting point to hold a conversation and explore this field.
Important Note About NFTs
At the moment, many people are being taken advantage of, due to their lack of access to knowledge about this field.
If I buy a limited edition watch, the seller will most likely give me three pieces of paper:
A Receipt - To prove I bought the watch
A Certifical of Ownership - To prove I am the rightful owner
A Certificate of Authenticity - So that I can prove to others that the watch is real
However, pieces of paper are problematic because they can be stolen, lost, or forged.
Most realistic application of NFTs in the future: Instead of giving me those 3 pieces of paper, they'll instead give me an NFT (essentially a digital version which combines all three documents). The NFT is like a digital certificate which proves you own something and that it's authentic.
Simple terms, NFT technology (theoretically) makes it impossible for you to lose, forge, or steel an NFT. Thus solving the issue we have with current paper & digital receipts.
"But Chirag, why do people say NFT is digital artwork?"
When poeple graduate from college, the proof is usually a piece of paper: Your Diploma
Now, some colleges offer to print your diploma on a really fancy paper or in a specific way, for an additional charge.
However, regardless of whether my diploma is printed on a plain white paper or on a red piece of paper, it's still a diploma. So those are just cosmetic changes, for my preference.
Because NFTS are digital, they have even more options than just the color of the paper. Because they're digital, I could make an NFT look like any photo or video! In the watch example: Imagine the watch company were to give me the certificate of authenticity and they printed it on really really fancy paper. Now, I come up to you and I say, "Hey man! I have this really fancy looking certificate for my watch. I'll sell you this certificate for $1000 but I'm not going to give you the watch, just this certificate."
You would kick me out of the room! What's the value of owning a certificate but not the watch?!?
However, imagine this: While I'm buying the watch, Vincent Van Gogh (famous artist), walks into the store and I beg him to do a quick drawing. He agrees and the only piece of paper I have is my certicate from the watch company. He draws a quick thing on the paper.
Now I can justify charging someone $1000 for a certificate without the watch. Because what you're buying is actually an authetic Van Gogh drawing. Because of the drawing, the certificate has value by itself, independent of the watch.
"So what are you saying, Chirag?"
At the moment, people are being told that they are buying digital art. However, in reality, they are buying certificates of ownership, which are not tied to anything. So they're paying a ton of money for fancy looking receipts, and not even getting the watch.
If I am looking to invest (long term) into NFTs. My personal (non-professional - This is not advice) opinion, is to answer these questions:
What is this NFT proving ownership for? i.e. Garyvee's NFTs VeeFriends also gives me access to some of his future conference events for free (That's worth $1000s).
If the NFT does not actually have something attached to it, is it at least been created by a truly famous artist or person? Owning one of the first NFTs created by Beeple, even if there wasn't an attached value, would still most likely be valuable in the future. It's kind of like owning one of the first Apple computer, in that it might not be usable in modern day, but it's valuable because it's "vintage" and a piece of history
"Chirag, why does this matter for my business?"
Well, there are multiple examples of how you can use NFTs in your business today, for example:
Replace all VIP or membership programs with NFTs - Similar to how FlyFish club sold 1,501 NFTs which now serve as digital VIP membership cards that give the holders access to selective restaurants around the world.
Use NFTs as a way for people to invest in the business' growth - When the pandemic first came, many restaurants overed bulk discounts for gift cards. This gave them quick access to money they needed to pay rent and gave the buyer gift cards they could use once the lockdowns went away. Instead, they could offer NFTs instead which would serve as these digital gift cards. The added benefit is that, a $50 giftcard will rarely increase in value beyond $50. However, an NFT can increase in value over time so there's an incentive for the buyer!
Something cool to keep in mind for businesses:
If I sold a customer an VIP membership card for $50, and they resell it to someone else for $100, I only made my original $50.
If I sell an NFT which serves as the VIP member card, because of the technology, I could set up a 5% reselling fee. So, anytime the VIP card is every resold, I would also get a portion of the sale!
Did this help you?
My name is Chirag and I love taking complex topics, breaking them down, and sharing them with others. I grew up in a small business family and hated how inaccessible business education was. So, now that I have access and platforms, I create content where I love geeking out over these things, and then share them with my audiences.
For Long Form Videos (Including a video of NFTs): Youtube Channel - EntreKey
You can also sign up for my newsletter, coming soon! Sign up form is in the footer of the site (look at the bottom :) )