Let’s begin with the ERC-20 Token Standard. If you see an Eth token on an exchange, like Uniswap, Tether, or ChainLink, you’re looking at an ERC-20 token. For an updated list of the top ERC-20 tokens, click here.

The most important thing to keep in mind about ERC-20 tokens is that they’re fungible, meaning an ERC-20 token bought on one exchange is the same (and hence, can be replaced by) an ERC-20 token bought on another exchange. They are mutually interchangeable, which is an important characteristic of money. A dollar, is a dollar, is a dollar. If a dollar was suddenly a nickel, or a chicken, or a piece of art, it would be a very unpredictable store of value.

Something Non-Fungible, then, is something that doesn’t have agreed upon market value. It’s worth noting that some of the most valuable items on the face of the planet have no mutually exchangeable market value. The Mona Lisa. The Great Sphinx of Egypt. Wine from the 1700s. These are all things that are Non-Fungible. The value is in the eye of the individual beholder (or drinker, as the case may be).

As odd a paradigm shift as it is, just as a dollar is always a dollar, so too is an ERC-20 token always an ERC-20 token. Any cryptocurrency coin behaves in exactly the same way.

With all of the inherent volatility in the cryptocurrency space, people often lose site of this fact. In actuality, the US Dollar jumps up and down in price relative to other currencies every day (this is why economists sometimes refer to the Dollar Index, or DXY, for reviewing the global market value of the US Dollar). On the international stage, national currencies exist in a state of perpetual global barter. When you change out your money for another currency you are actively participating in this barter system. So how do NFTs fit within this crazy stewpot of monetary policy?

On the Ethereum network, when someone refers to an NFT they’re referring to an ERC-721 token.

A “Non-Fungible-Token” is something on the blockchain that acts outside the market, and can be assigned any value. It’s value is truly in the eye of the individual purchaser. Something bought for $10,000 one day might be sold for $20,000 the next day, and then $5 ten years later. The value of a “Non-Fungible-Token” is not decided on a money market. People don’t vote up or down with their dollars in a way that decides the exchangeable monetary value for all ERC-721 tokens.

When people buy NFTs for digital art online they’d do well to remember this fact. Just because an NFT associated with a jpeg was purchased for $69 M (as was the case with Beeple’s “Everydays — The First 5000 Days”), it does not follow that someone else will pay the same amount for it. The number could be higher, but it also could be much lower.

It’s not outside the realm of possibility that this contemporary jpeg will drop in value by about $69 M over the coming decade. That’s the gamble people are nowadays unwittingly taking.

Why is there a potential mismatch of value? In the case of NFTs, much of it stems from an inadequate understanding of what an NFT actually is. An ERC-721 Token is just a Digital Deed. It’s a smart contract between two legal entities, whether individuals or organizations. The details of the contract can be every bit as detailed as the list items from a will. In the case of the ERC-721 token, the difference is the deed is coded into existence on the Ethereum blockchain. As such, it’s available for anyone to reference through Ethereum’s public ledger of transactions.