NFTs are non-fungible tokens. That means each NFT is unique. By contrast, a dollar bill is fungible. This means that a dollar is a dollar. Even an old, dirty, worn out dollar is still worth the same as a new, clean dollar. They're fungible.
The #1 thing to know about NFTs is this: each NFT is unique. Unlike the old, dirty dollar and the new, crisp dollar which are fungible and hold the same value, NFTs are non-fungible.
NFTs are unique.
Let's take an example. Think about two tickets to the big game. You hold a front-row ticket at mid-field in the V.I.P. section...with the free buffet and drinks! A "friend" online holds a top-row ticket in the corner of the stadium. That "friend" asks if you'd like to trade tickets. After all, both tickets will get you inside the stadium.
Would you trade tickets?
No? I didn't think so. Although the friend is correct in that both tickets will get you in, they are definitely not equal. Those tickets are like NFTs...each is special and unique. What's more, each NFT, NFTs can be proven to be special, unique, and legit. Whereas a ticket to the big game can be faked or counterfeit, NFTs cannot. The blockchain's ledger verifies what's real and what's not.
NFTs have power.
Fungible coins, like Bitcoin and dollars, are great. Feel free to send any extras to me! :) However, non-fungible tokens pack special bits of power that fungibles cannot. The power, again, comes in that each is veriably unique from any other. This verifiable distinction unlocks doors to use.
The artwork example.
One of the most clear and easy examples of NFTs in action can be seen through artwork. Art makes a natural use case for NFTs and great place to learn.
Take the Mona Lisa. There is only one. It is 100% original and unique. However, there are countless copies of the Mona Lisa. If you owned the real Mona Lisa painting, would you trade it for a $10 printed copy? No. What if a computer-and-machine could scan, analyze, and re-paint exactly as the original. Somehow, every single brush stroke, color, and technique that da Vinci used could be replicated. No expert could tell the difference between the original and the robo-painting. Would you trade your original Mona Lisa for the robo-copy?
No, you still would not trade. The original is verifiable...it's the one hanging in the Louvre museum in Paris! Everyone on Earth points to the one in the Louvre and forms a consensus, saying, "Yep, that's the real one." The robo-painting (and all the $10 prints) still holds its own value, but it is not the original and everyone knows it. The real and robo paintings are non-fungible.
If da Vinci were around today, he would be making NFTs of the Mona Lisa. As well as having the physical painting hanging on a wall, he would create digital NFTs of the Mona Lisa. He might choose to make one, and only one, Mona Lisa NFT. It would be very valuable and a very wealthy person or group would buy it. Thanks to blockchain technology, the authenticity of da Vinci's official NFT could be proven. In this way, NFTs can be authenticated similar to how the real Mona Lisa is verified in the Louvre and how $10 prints of the Mona Lisa are identified as fakes. And, thanks to blockchain, the true purchaser/owner could be verified.
Instead of making only one NFT, da Vinci might choose to make, say, 25 NFTs of the Mona Lisa. Since there are 25, they likely less than if he'd made only one. Yet, each would still have value. What's more, each the 25 NFTs would non-fungible and unique. Although they look, and are, exactly the same because they have identical "digital DNA", the mint number still distinguishes mint #1 from, say, mint #22. This is similar to the stadium seat ticket example above.
Would you trade? Suppose da Vinci minted 25 Mona Lisa NFTs. Suppose you won mint #1 in a drawing. Lucky you! A billionaire purchased mint #22. The billionaire asked you, "Want to trade my #22 for your #1, straight up?" Would you trade?
Most likely, no, you would not. Although they look, and are, the same fundamentally, the mint number makes then non-fungible and unique. Being the first, yours likely is more valuable than number 22-of-25.
Another option da Vinci might pursue is "tokenizing" the physical Mona Lisa. Suppose he came on some tough financial times and needed some cash. He wanted to sell the Mona Lisa. Very, very few people in the world could afford to make that purchase. And, suppose da Vinci wanted the average person to be able to get into the buying and owning of the Mona Lisa. Through NFTs, he could tokenize the ownership of the physical painting.
To tokenize the Mona Lisa and allow more people to buy in, da Vinci mints NFTs. Then he announces that they represent ownership of the physical painting. Suppose he mints one million. Each represents one millionth ownership of the Mona Lisa. Now, many, many more people can buy "shares" of ownership. If you purchase one NFT, you own one millionth of the physical painting. As owner, you will earn one millionth of the profits or royalties the painting generates. As owner, you can sell your NFT ownership at any time. The blockchain documents and verifies your sale and the new owner. Suppose a billionaire purchased 51% of the NFTs and had a controlling stake. As majority owner, he decides what to do with the painting. Suppose that billionaire decided to move the painting from the Louvre and hang the painting in his laundry room where only he could enjoy it (while he's doing his own laundry). Mean billionaire! But, you still own one millionth of that painting! Though it's hidden from sight, the blockchain still says you are a part owner with full ownership rights!