NFT stands for non fungible token.
In economics, a fungible asset is something with units that can be easily exchanged, such as money.
With money, one can exchange a 10 euro bill for two five euroo notes and it will have the same value.
However, if something is not fungible, that is impossible: it means that it has unique properties, so it cannot be exchanged.
It could be a house, or a work of art like the Mona Lisa, which is unique. One could take a photograph of the painting or buy a copy but only one original painting will exist.
NFTs are an "inimitable" asset in the digital world that can be bought and sold like any other type of property, but have no tangible form themselves.
These digital tokens can be understood as certificates of ownership of virtual or physical assets.
How do they work?
Traditional works of art such as paintings are valuable because they are unique. But digital files can easily be duplicated over and over again.
With NFTs, art can be tokenized to create a digital certificate of ownership that can be bought and sold. As with cryptocurrencies, a record of who owns what is stored in a shared ledger like the blockchain.
The records cannot be falsified because the ledger in question is maintained by thousands of computers around the world.
NFTs can also contain smart contracts that could provide the artist with, for example, a share of a future sale of the token.
What stops people from copying digital art?
Nothing. Millions of people have seen the piece of art that sold for US$69 million, by artist Mike Winkelmann, known as Beeple, and the image has been copied and shared countless times.
In many cases, the artist even retains the copyright to their work, so they can continue to produce and sell copies.
But the NFT buyer holds a token that proves he is the owner of the "original" work.
Some people compare it to buying a signed copy.
Is it just a bubble?
A day before the auction, Beeple told the BBC, "I actually think there will be a bubble, to be honest."
"And I think we may be in that bubble right now."
Others are even far more skeptical.
David Gerard, author of Attack of the 50-foot Blockchain, stated that he viewed NFTs as buying "official collectibles."
"There are some artists getting money from these things ... but you probably won't," he warned.