What Are NFTs?

NFTs, or non-fungible tokens, have become one of the most exciting innovations in the digital economy, sparking conversations and developments in industries as diverse as art, gaming, real estate, entertainment, and more. But what exactly are NFTs, and why are they so important? This article explores the concept, functionality, and use cases of NFTs, offering a comprehensive guide to these unique digital assets.

How do NFTs work?

At their core, NFTs are a type of digital asset that exists on a blockchain network — a type of decentralized digital ledger. NFTs are characterized by their uniqueness, which sets them apart from other blockchain-based assets like cryptocurrencies that are interchangeable. Each NFT represents something distinct, which means NFTs cannot be exchanged on a one-to-one basis with another NFT — a quality called “non-fungibility” that we’ll explore further shortly.

This uniqueness is the foundation of the value and utility of NFTs. Each NFT contains metadata that describes its unique properties, such as the creator, ownership history, and any associated digital or physical content. NFTs are stored on blockchains to leverage their security, immutability, and transparency — activities involving NFTs are recorded just as securely as any other blockchain transaction, and anybody can see and confirm the details embedded in an NFT. Also of note, NFTs are crypto “tokens,” which is a category of blockchain-based assets that is distinct from cryptocurrencies — another important distinction we’ll dive into below.

Key characteristics of NFTs

Each NFT represents a one-of-a-kind digital asset. Some of the defining characteristics that distinguish NFTs from other types of digital assets include:

• Uniqueness: Each NFT has a distinct identifier that sets it apart from any other asset.
• Indivisibility: NFTs cannot be divided into smaller units and must be bought, sold, or held as a whole. This differs from cryptocurrencies and fungible tokens which may be divided into smaller units.
• Provenance: Since each NFT is unique, it’s possible to trace its history on a blockchain — something that’s not possible with fungible assets that lack unique identifiers (e.g., tracing the ownership history of one particular BTC or USDC).
• Programmability: NFTs enable built-in programmable functions like, for example, royalties that automatically pay creators a percentage of sales whenever the NFT is resold.

NFT fundamentals

The world of NFTs can seem complex, but understanding their foundation starts with two key ideas: tokens and fungibility. These concepts underpin how NFTs function and why they differ from traditional cryptocurrencies. Let’s break these terms down to demystify the building blocks of the NFT ecosystem.

What is a blockchain token?

A token is a digital representation of something on a blockchain — a stand-in for an asset, right, or utility. Essentially, it is a programmable unit of data stored on a blockchain that can represent anything from ownership, to access rights, or even in-game items.

Tokenization refers to the process of converting these assets, rights, or utilities into digital tokens that are recorded and tracked on a blockchain. By tokenizing an asset, its ownership or access can be verified, transferred, or traded in a secure and decentralized way. In the case of NFTs, tokens act as digital proof of ownership for unique assets, whether they are physical (like real estate) or digital (like a piece of art or a video). What makes these tokens “non-fungible” is their uniqueness — they are not interchangeable like cryptocurrencies.

To tokenize an asset, developers must follow a tokenization standard — essentially a set of rules for creating, managing, and interacting with tokens on a particular blockchain network. Tokenization standards help promote compatibility across various platforms and marketplaces on a given blockchain. NFTs typically utilize tokenization standards like Ethereum’s ERC-721 or ERC-1155 (which are also commonly used on other Ethereum-compatible blockchains like Avalanche and Polygon, and on many Ethereum Layer-2 blockchains like Base). Other blockchain ecosystems have similar NFT tokenization standards, like the SPL standard on Solana and NEP-171 on NEAR.These standards are critical for interoperability and the smooth functioning of the NFT ecosystem.

Crypto tokens vs cryptocurrencies

Although the terms "tokens" and "cryptocurrencies" are often used interchangeably, they refer to distinct concepts within the blockchain ecosystem. Cryptocurrencies, such as bitcoin (BTC) or ether (ETH), often function as a medium of exchange or a store of value within their respective blockchain networks. These cryptocurrencies are fungible, meaning each unit holds the same value as another, making them interchangeable and suitable for transactions.

Cryptocurrencies also play an integral role in the functioning of a blockchain itself. They are often used as part of the blockchain’s consensus mechanism, which secures the network. For example, in proof-of-work (PoW) blockchains like Bitcoin, miners are rewarded with cryptocurrency (the "block reward") for validating transactions and adding new blocks to the chain. In proof-of-stake (PoS) systems, cryptocurrencies like ETH are staked as collateral to help verify transactions and maintain consensus. These mechanisms are what enable blockchains to remain decentralized, secure, and operational.

Tokens, on the other hand, are built on top of existing blockchain networks like Ethereum or Solana. While they leverage the underlying blockchain infrastructure, they are not integral to its core functioning. Tokens have more diverse applications — they can represent assets (e.g., ownership of real estate or art), grant access rights (e.g., a subscription or membership), or provide utility within a specific platform (e.g., governance voting or in-game items). Tokens can be fungible or non-fungible.

What is fungibility in crypto?

Fungibility is the property of an asset that allows it to be mutually interchangeable for another asset of the same type and value. In other words, a fungible asset is interchangeable and does not have unique characteristics that differentiate one unit from another. For example, a US dollar is fungible because any one dollar is identical in value to another dollar, regardless of its serial number or who possesses it.

Cryptocurrencies like bitcoin (BTC) or ether (ETH) are also fungible assets. One BTC is equal in value to another BTC, and one ETH holds the same value as another ETH. This interchangeable quality makes fungible assets highly efficient for trade, as they eliminate the need to assess unique attributes during transactions. Fungibility is a cornerstone of traditional financial systems because it simplifies commerce and enables standardization. It allows for seamless transactions across markets, as all units are treated equally in terms of value.

What does it mean to be a non-fungible token?

NFTs belong to the category of crypto tokens, but are set apart by their non-fungible nature. Unlike fungible cryptocurrencies and tokens, NFTs are unique and indivisible, enabling them to represent one-of-a-kind assets in the digital or physical world, such as artwork, music, or virtual real estate. This uniqueness and flexibility opens up new possibilities for ownership, commerce, and innovation.

Think of a non-fungible token as akin to rare baseball cards, one-of-a-kind artwork, or limited-edition collectibles. Each NFT carries distinct metadata and characteristics, making it impossible to swap one for another on a one-to-one basis without taking their specific value and attributes into account.

This uniqueness is what gives NFTs their power to represent ownership of exclusive assets. For example, a digital artist can mint an NFT tied to their artwork, ensuring it is verifiably original and belongs to a specific owner. Beyond digital art, NFTs are also used to authenticate ownership of virtual real estate, in-game assets, and even music or event tickets. By enabling creators to tokenize their work and connect directly with buyers, NFTs open up new opportunities to reshape how we think about ownership in the digital age.

What are NFTs used for?

NFTs are transforming industries by offering new ways to represent ownership, value, and creativity in the digital age. From fine art to gaming to virtual real estate and more, NFTs are reshaping how we interact with assets, creating opportunities for both creators and consumers to engage in innovative and decentralized marketplaces. Let’s explore some of the most prominent use cases and advantages of NFTs.

NFT collectibles

Digital collectibles are among the earliest and most popular applications of NFTs. Platforms like NBA Top Shot have successfully brought sports memorabilia into the digital age, allowing fans to buy, sell, and trade officially licensed highlight clips as NFTs. These collectibles have attracted millions of users and generated significant revenue, illustrating how NFTs can blend nostalgia with cutting-edge technology.

Other notable collectible projects, such as CryptoPunks and Bored Ape Yacht Club, have created thriving communities around digital ownership. These NFT collections often grant holders exclusive benefits, such as access to private events or member-only perks, adding to their allure and value.

The NFT collectible space bridges the gap between art, pop culture, and technology, offering a modern way for fans to engage with their favorite franchises and communities.

NFTs in art

NFTs have revolutionized the art world by enabling artists to tokenize their creations and sell them directly to collectors without relying on intermediaries like galleries or auction houses. Through platforms like OpenSea, Foundation, and Rarible, artists can mint their work as NFTs, ensuring both verifiable authenticity and direct ownership transfer.

One of the most high-profile examples of NFT art is Beeple’s “Everydays: The First 5000 Days,” which sold for $69 million USD in 2021, sparking global attention around the potential of digital art in the blockchain era. Beyond one-time sales, NFTs also enable artists to program royalties into their assets, enabling them to earn a percentage of revenue from all future resales of their work. (This programmability is achieved with smart contracts — a foundational technology underlying the creation, trade, and functionality of NFTs). This creates an entirely new revenue stream for creators, ensuring they benefit from the long-term value of their creations.

NFT art isn't limited to static images — dynamic works, animations, and interactive pieces are flourishing as well, further expanding what digital art can be.

NFTs in gaming

In the gaming industry, NFTs are redefining the concept of in-game ownership. Traditionally, in-game items like skins, weapons, or characters are owned by the game developer and confined to a single platform. Players may spend money on these items but do not truly own or control them outside the game’s ecosystem.

NFTs change this paradigm by allowing players to own in-game assets as blockchain-based tokens, which can be traded, sold, or even used across multiple platforms and games. For example, Axie Infinity and The Sandbox have embraced NFTs to create decentralized gaming economies where players can not only enjoy gameplay but also potentially monetize their in-game assets.

These NFT-based assets often include features like rarity and utility, adding to their value in both the gaming world and secondary marketplaces. NFTs in gaming empower players by giving them more control over the digital items they acquire, opening up new possibilities for monetization and collaboration in virtual worlds.

NFTs in real estate

Real estate — both virtual and physical — is one of the most compelling applications of NFTs.

Virtual real estate involves the ownership of digital land in the metaverse. Platforms like Decentraland and The Sandbox enable users to purchase parcels of virtual land as NFTs, with ownership and transaction history securely recorded on the blockchain. These virtual properties can be developed into various projects, such as virtual storefronts, event spaces, or immersive gaming experiences. For example, brands and creators are using NFT-owned digital land to host virtual art galleries, concerts, and conferences, engaging audiences in innovative ways. Virtual real estate NFTs allow users to fully own and control their assets within the metaverse, making it possible to trade or lease properties just as in the physical world.

As the metaverse continues to evolve, virtual real estate is expected to play an increasingly significant role in digital economies, enabling new forms of investment and community building within these immersive environments.

Beyond the metaverse, NFTs are also being used to tokenize physical real estate, creating a digital deed to a property that is stored and secured on a blockchain. Tokenized real estate converts the ownership of physical assets — such as houses, apartments, or commercial buildings — into NFTs. These NFTs can represent a full property deed or fractional ownership (i.e., a single plot of land that’s represented by multiple NFTs), allowing for new methods of buying, selling, and investing in real estate.

For instance, an NFT could serve as a digital certificate that verifies ownership of a house. The blockchain ensures that the deed is tamper-proof, traceable, and transferable, reducing the need for traditional intermediaries like escrow services or title companies. Buyers and sellers can securely transfer ownership directly through blockchain transactions, streamlining processes that have traditionally been slow and arduous.

Whether in virtual or physical form, NFT technology is revolutionizing how we think about owning and trading real estate. By leveraging the transparency and efficiency of blockchain, NFTs make property ownership more accessible, secure, and innovative.

NFTs in entertainment

NFTs are providing musicians, filmmakers, and other entertainers with innovative ways to connect with fans and monetize their work. For instance, the band Kings of Leon released an album as an NFT, offering fans exclusive perks like limited-edition vinyl, special concert experiences, and collectible artwork.

In addition to music, filmmakers and content creators are using NFTs to fund their projects by selling exclusive behind-the-scenes content or even fractional ownership of future profits. NFTs are also being integrated into ticketing systems, offering verifiable, blockchain-based digital tickets for concerts, events, and live performances. This reduces the risk of counterfeit tickets and enables artists to connect more directly with their audiences.

Through NFTs, creators are unlocking new revenue streams while giving fans access to unique, collectible experiences that were previously unimaginable.

Advantages of NFTs

NFTs offer several benefits that are driving their growing adoption across industries:

• Empowering creators: By tokenizing their work, artists, musicians, and other creators can monetize their efforts directly, eliminating intermediaries and retaining greater control over their intellectual property. Additionally, smart contract functionality allows creators to earn royalties on secondary sales automatically.
• Authenticity and provenance: NFTs leverage blockchain technology to establish clear and tamper-proof ownership records. This security and transparency helps prevent counterfeiting and fraud, ensuring buyers can verify the authenticity and origin of the assets they purchase.
• Global accessibility: NFTs are traded on decentralized platforms that are accessible to individuals with an internet connection, opening up markets for creators and collectors worldwide.
• Programmable features: NFTs can include advanced programmable functionalities, such as unlockable content, automated royalty payments, or exclusive membership benefits. These features enhance their value and utility for both creators and buyers.

How to make NFTs

Creating an NFT, or "minting," is the process of transforming a digital file into a blockchain-based token. The minted NFT acts as a certificate of ownership, linking the digital asset (such as an image, video, music file, or 3D model) to a unique token on the blockchain. This ensures the asset’s originality, ownership, and traceability.

Minting allows creators to monetize their work as one-of-a-kind or limited-edition assets, offering buyers verifiable proof of ownership and access to exclusive digital content. Below is a step-by-step guide to help you create your first NFT:

Step 1: Choose a blockchain

Start by selecting the blockchain where you will mint your NFT. The blockchain determines the token standards, fees, and marketplace compatibility for your NFT.

Ethereum is the most widely used blockchain for NFTs due to its robust ecosystem and popular token standards like ERC-721 and ERC-1155. However, alternative blockchains such as Arbitrum and Solana are gaining traction for their lower transaction fees and faster processing times, which can be especially appealing to creators and buyers. To make the best choice, consider your goals, budget, and the user base of the platform to ensure it aligns with your project needs.

Step 2: Set up a crypto wallet

A cryptocurrency wallet is required to store your NFTs and the cryptocurrency you’ll need to pay minting fees (commonly referred to as "gas fees"). Popular wallet options include MetaMask and Phantom. Once your wallet is set up, ensure it is funded with the appropriate cryptocurrency for minting. For example, if you’re minting on Ethereum, you’ll need ETH to cover transaction fees.

Step 3: Select an NFT marketplace

NFT marketplaces are platforms where you can mint, showcase, and sell your NFTs. Each marketplace caters to different types of NFTs and blockchains, so choose one that aligns with your project. Popular options include:

• OpenSea: The largest NFT marketplace, supporting Ethereum, Polygon, and more. It caters to a wide range of NFTs, from art and collectibles to music and gaming assets.
• Rarible: A community-driven platform for creators, offering customizable minting options and multi-chain support.
• Foundation: A curated marketplace focused on high-quality digital art.

Step 4: Upload your digital asset

Once you’ve chosen your marketplace, it’s time to upload your digital asset. This typically happens on the NFT marketplace you selected earlier, as most marketplaces provide an easy-to-use interface for uploading your content. When you upload your digital asset, it is not stored directly on the blockchain due to storage limitations and costs. Instead, NFTs often use decentralized storage solutions such as IPFS (InterPlanetary File System) or Arweave to securely store the digital file. The NFT itself, recorded on the blockchain, contains a pointer or link to the location of the asset in the decentralized storage. Again, this asset could be an image, audio file, video, 3D model, or any other digital content you want to mint as an NFT.

When uploading your asset, you’ll need to add metadata to make your NFT unique and valuable. Typical NFT metadata includes:

• Title: A name for your NFT.
• Description: Information about the asset, such as its backstory, purpose, or inspiration.
• Properties/attributes: Optional features that distinguish your NFT, such as rarity levels or unlockable content.

Some platforms also allow you to include extra features like private files (e.g., a high-resolution version of the asset) that only the NFT buyer can access.

Step 5: Mint the NFT

After uploading your file and submitting the necessary details, it’s time to mint your NFT. Minting involves reviewing the details of your NFT, paying the required gas fee to record your NFT on the blockchain, and confirming the transaction in your wallet. Once the minting process is complete, your NFT will be officially created and recorded on the blockchain. It will appear in your wallet and be available for sale, auction, or display on the marketplace.

Consider using lazy minting, a feature offered by platforms like OpenSea, where your NFT is created only when it is purchased. This allows you to avoid upfront gas fees, making it a cost-effective option for new creators. Additionally, you may consider researching licensing options to decide whether you want to grant buyers commercial rights to your NFT, allowing them to use it in their own projects, or retain those rights for yourself. Some platforms provide tools to specify licensing terms, ensuring clarity for both creators and buyers.

Minting an NFT is an exciting process that allows creators to tap into the growing digital economy. Whether you’re an artist, musician, gamer, or entrepreneur, NFTs offer a way to monetize your work while leveraging the transparency and security of blockchain technology. By following these steps, you can create NFTs that stand out in an ever-expanding marketplace.

The future of NFTs

As blockchain technology continues to evolve, the future of NFTs looks increasingly promising. These unique digital assets have already demonstrated their potential to revolutionize art, gaming, real estate, entertainment, and more. As the technology matures, here are some key trends and developments to watch in the evolving NFT space.

• Broader adoption: As platforms become more user-friendly and minting costs decrease, NFTs are expected to attract a wider audience, including individuals, businesses, and institutions. Simplified tools for creating and trading NFTs will make it easier for non-technical users to participate in the market, fostering widespread adoption. Brands, governments, and organizations are also beginning to experiment with NFTs to enhance customer engagement, secure digital transactions, and tokenize traditional assets.
• Interoperability: One of the biggest challenges in the NFT ecosystem today is platform fragmentation. Enhanced interoperability — the ability for NFTs to move seamlessly between different blockchains and marketplaces — will be critical to their long-term success. Cross-chain compatibility will enable NFTs to function as universal assets, allowing users to trade, transfer, and utilize them across a variety of ecosystems without being locked into a single platform.
• New applications: While art and gaming have dominated the NFT conversation, the future holds vast opportunities for NFTs in other sectors such as healthcare, education, and supply chain management.

NFTs have opened new doors for ownership, creativity, and commerce in the digital realm. By combining the transparency and security of blockchain with the creativity of the digital world, NFTs are enabling a more inclusive and innovative economy. From enabling direct ownership to fostering new creative and business models, NFTs are empowering individuals and organizations to rethink the possibilities of digital engagement and commerce.

Whether you’re an artist seeking to monetize your work, a gamer interested in true ownership of in-game items, or someone simply curious about the future of technology, NFTs provide a glimpse into a world where digital and physical realities converge in transformative ways.