What Are NFTs and How Do They Work? (2024)

Non-fungible tokens (NFTs) are a special type of crypto asset that allows holders to prove their ownership of real or digital items – but most importantly, the latter.

These intangible items can include things like plots of virtual real estate in games like The Sandbox and Decentraland, to digital artwork like Beeple’s Everydays - The 2020 collection, and even images of cartoon apes.

While this might sound pretty underwhelming to the average person, you need to appreciate that in today’s ever-increasing digital world it’s incredibly difficult to authenticate or exercise ownership over things that anyone can simply screenshot, copy or download.

Imagine you’re a concept artist who creates digital artwork for gaming companies like Ubisoft or Treyarch. Now imagine you want to go it alone and sell your digital artwork online. To achieve this, you’d need to find some way of marking and tracking ownership of your pieces so that purchasers could prove they had original pieces and not just some screenshot. Otherwise, what’s the point of spending your money on it?

This is where NFTs come in.

What are NFTs?

Non-fungible tokens are tradable digital assets that contain information that essentially says, “the person in control of this crypto wallet address is the owner of a computer file, stored in this location.”

The computer file, as we’ve discussed, can be anything from an image to a GIF or audio clip.

What’s interesting about NFTs is even if you create 1,000 copies of the same image or file and mint the same number of NFTs to represent ownership of them, each copy of the image will be uniquely identifiable from the other 999 pieces based on the special type of information (called metadata) that each NFT token contains.

This means that while 1,000 investors might all have the same looking image in their wallets, they can each say “I specifically own copy number #.”

Think of it as an edition of a trading card with 1,000 exclusive copies, but where each card has its own serial number to distinguish it from others. In addition, the card with the serial number #1 on it would most likely go for a higher price and be more desirable than other copies in the edition.

Taking this concept even further, creators of these types of NFT collections incorporate different traits of varying degrees of rarity to further increase the value and scarcity of their pieces.

For instance, among the 1,000 pieces, a creator might decide that 10 of them will have a different colored background and only one of them will have a patterned background. By doing this, some purchasers interested in investing in the collection will naturally want to own the rarest pieces in the collection in the hope their value will rise more over time – assuming demand for the collection remains high.

Read more: What is ApeCoin and Who’s Behind It?

Now, let’s talk about fungibility – the part that gives non-fungible tokens their name. By definition, fungible tokens are those that can be mutually exchanged for another token like-for-like. For example, Bob can swap his one bitcoin for Alice’s one bitcoin and neither party will be better or worse off. With NFTs, this is not so straightforward.

While NFTs themselves are exchangeable (in the sense that you can buy and sell NFTs from/ to other people) the unique traits of each NFT mean it has its own distinct value. For instance, you couldn’t trade a shiny Charizard Pokemon card for a “Shoeless” Joe Jackson, 1909 American Caramel baseball card like-for-like. This is what’s meant by “non-fungible” when people talk about NFTs.

Other key characteristics of NFTs include:

  • Indestructible: Because all NFT data is stored on the blockchain via smart contracts, each token cannot be destroyed, removed or replicated. Ownership of these tokens is also immutable, which means gamers and collectors actually possess their NFTs, not the companies that create them. This contrasts with buying things like music from the iTunes store where users don't actually own what they’re buying, they just purchase the license to listen to the music.

  • Verifiable: Another benefit of storing historical ownership data on the blockchain is that items such as digital artwork can be traced back to the original creator, which allows pieces to be authenticated without the need for third-party verification.

How do NFTs work?

We’ve already identified that in order to be able to prove ownership of something digital, there needs to be some form of a transparent, immutable ledger that maintains a constant record of all NFTs, who owns them and where the files that they point to are kept.

This is where blockchain technology comes in. By leveraging the publicly distributed, immutable nature of blockchains, all NFTs can be stored in a transparent way, allowing anyone to check the authenticity of any NFT at any time.

Each time an NFT is transferred or created, the action is permanently recorded on the blockchain and timestamped, meaning it’s possible to trace any single NFT right back to its genesis – something that’s pretty handy if you want to make sure your cartoon ape or virtual kitty is genuine or not.

Read more: What is Blockchain Technology?

Now, let’s go back one step and discuss what NFTs are from a technical standpoint.

Crypto assets can be created from scratch but most developers when setting out to launch tokens will typically use an existing blueprint to streamline the process and save costs. Leading crypto projects such as Ethereum recognized early on that there needed to be some form of standardization among newly created crypto tokens to establish interoperability.

Ethereum token standards were developed to achieve exactly this. These involve specific sets of smart contract functions that a token must be able to perform in order to be compatible with all other tokens, platforms and services in the broader Ethereum ecosystem.

Ethereum token standards ERC-721 and ERC-1155 are the main blueprints created by Ethereum that allow developers to create and deploy their own non-fungible tokens on top of its blockchain.

Eos, Neo and Tron are examples of other leading blockchains that have also released their own NFT token standards to encourage developers to build and host NFTs on their blockchain networks.

Read More: How to Make, Buy and Sell NFTs

Finally, it’s important to note that it’s not just the fungibility of NFTs – albeit their lack of – that sets them aside from other types of cryptocurrencies. The infrastructure that supports NFTs is also different.

Unlike all other cryptocurrencies, NFTs cannot be listed, bought or sold on centralized or decentralized exchanges. Instead, users must use tailor-made NFT marketplaces to participate in the listing and trading of these assets. OpenSea and Rarible are among the most popular, but there are countless other options available depending on which NFT collection you’re interested in.

Why do NFTs matter?

Non-fungible tokens (NFT) have become hugely popular with crypto users and companies alike because of the way they revolutionized the gaming and collectibles space. Since June 2017 there has been a total of $25 billion spent on NFTs, including a further $21 billion in secondary sales.

For gamers and collectors, NFTs provide an opportunity for them to become the immutable owners of in-game items and other unique assets, as well as create and monetize structures like casinos and theme parks in virtual worlds.

They can also sell individual digitals items they accrue during gameplay such as costumes, avatars and in-game currency on a secondary market.

For artists, being able to sell artwork in digital form directly to a global audience of buyers without using an auction house or gallery allows them to keep a significantly greater portion of the profits they make from sales.

Royalties can also be programmed into digital artwork so that the creator receives a percentage of sale profits each time the artwork is sold to a new owner.

William Shatner, best known as Captain Kirk from “Star Trek,” ventured into digital collectibles in 2020 and issued 90,000 digital cards on the WAX blockchain showcasing various images of himself. Each card was initially sold for approximately $1 and now provides Shatner with passive royalty income every time one is resold.

Why do NFTs have value?

Like all assets, supply and demand are the key market drivers for price. Due to the scarce nature of NFTs and the high demand from gamers, collectors and investors, people are often prepared to pay a lot of money for them.

Some NFTs also have the potential to make their owners a lot of money. For instance, one gamer on the Decentraland virtual land platform decided to purchase 64 lots and combine them into a single estate. Dubbed “The Secrets of Satoshi’s Tea Garden,” it sold for $80,000 purely because of its desirable location and road access.

Another investor parted with $222,000 to purchase a segment of a digital Monaco racing track in the F1 Delta Time game. The NFT representing the piece of digital track allows the owner to receive 5% dividends from all races that take place on it, including entry ticket fees.

What are the most expensive NFTs?

The most expensive NFT sale to date took place in December 2021, when a fractionalized NFT artwork piece called “The Merge” was sold; 312,686 pieces of the artwork were shared among 28,983 different buyers for a collective price of $91.8 million.

Beeple’s Everydays: The First 5,000 Days piece takes second place, fetching $69.3 million at auction from a single buyer.

Finally, an NFT named “Clock” currently stands as the third-most expensive NFT ever bought – with 10,000 individuals forming an “AssangeDAO” to purchase the piece for $52.7 million. This piece is essentially a stopwatch that shows the total time WikiLeaks founder Julian Assange has been imprisoned. It was launched by Assange in partnership with digital artist Pak to raise funds for Assange’s ongoing, high-profile court case.

This article was originally published on

Feb 1, 2021 at 8:25 p.m. UTC

What Are NFTs and How Do They Work? (2024)


What exactly are NFTs and how do they work? ›

NFTs (non-fungible tokens) are unique cryptographic tokens that exist on a blockchain and cannot be replicated. NFTs can represent real-world items like artwork and real estate. "Tokenizing" these real-world tangible assets makes buying, selling, and trading them more efficient while reducing the probability of fraud.

What is NFTs in a simple way? ›

In brief. Non-fungible tokens (NFTs) are cryptographically unique tokens that are linked to digital (and sometimes physical) content, providing proof of ownership. They have many use cases, including artwork, digital collectibles, music, and items in video games.

How do NFTs work and how do you make money? ›

The most popular way to generate money from NFTs is by selling them on NFT-dedicated marketplaces. Today, there are a variety of marketplaces and platforms where you can create, list, sell, and exchange NFTs including: OpenSea. Mintable.

How are NFTs actually worth anything? ›

An NFT has value because the buyer and their community believe it has value—which is true for all art and collectibles. And as time goes by, an NFT gains more of its own character, based on factors like who's owned it and how they've used it.

How do NFTs work for dummies? ›

The acronym NFT stands for “non-fungible token.” Similar to cryptocurrencies like Bitcoin, NFTs are digital assets that can be purchased, sold, and traded at will, just as you could anything else you owned. As you might surmise from the word “token,” NFTs are indeed tokenized.

What are some examples of NFTs? ›

21 examples of NFTs and how to get inspired by them
  • Beeple's “Everydays: The First 5000 Days” ...
  • William Shatner's personal memorabilia. ...
  • Grimes releases WarNymph. ...
  • 4 Nyan Cat GIF. ...
  • Jack Dorsey's first-ever tweet. ...
  • Sports Collectibles: NBA shots. ...
  • CryptoKitties: Probably one of the first popular NFTs created.

What are the 3 types of NFTs? ›

The three common types of NFTs include, Original or copy of work, documented on a blockchain network or DLT. Digitally native NFTs, which have ownership rights to the work constituting the NFTs. NFT metadata, which involves the NFT providing representation of ownership for metadata files related to the internet.

Are NFTs easy money? ›

Trading NFTs is a smart and easy way of making money easily and efficiently. You can purchase an NFT collection and make a profit by selling them at higher rates. However, trading NFTs is not an easy task.

Why are people buying NFT? ›

Being a digital version of rare assets, NFTs opened doors for both collectors and artists to make a living by selling and buying or even trading for profits like a crypto investment. Other perks of NFTs as digital assets include fewer maintenance costs and greater asset security.

How do I convert NFT to cash? ›

Just transfer the NFT to the marketplace where you want to sell it (if it currently isn't already there, or if you are storing your NFTs only in your personal crypto wallet and don't have them available to be viewed on a marketplace). Then click on the "Sell" button from within the page of the NFT you want to sell.

How much money do you need to make NFTs? ›

The costs to develop an NFT can vary greatly depending on the type of market. The developer must create code to enable the NFT to function for free. This can cost anywhere from $7 to $150, depending on the complexity of the project. It is up to the creator what format an NFT takes.

How much do you have to pay to make NFTs? ›

The cost to create an NFT ranges from $0.05 to over $150. The Ethereum blockchain is the most expensive blockchain with an average cost of $70, and Solana is the cheapest costing only $0.01 on average to create an NFT.

Can anyone make an NFT? ›

An NFT is a unique digital item with a sole owner. That rarity gives an NFT value. Make sure that you own the intellectual property rights to the item you want to turn into an NFT. Creating an NFT for a digital asset you don't own could get you into legal trouble.

What kind of NFTs sell best? ›

1. Art. Art is the most popular form of NFT out there. Because of that, art is also the kind of NFT that sells the best.

Whats the most expensive NFT? ›

Sale details: The most famous NFT sale (and the most expensive NFT sale to date) was Beeple's Everydays: The First 5000 Days for $69.3 million.

How should a beginner start NFTs? ›

How to make NFT art: Step-by-step Beginners Guide for Creating NFT
  1. Step 1: Make an image or a group of images. Make an image or a group of images. ...
  2. Choose a marketplace. ...
  3. Set up your NFT wallet. ...
  4. Step 4: Prepare mint NFTs. ...
  5. Step 5: Acquire ETH to list NFTs. ...
  6. Step 6: Set up the sale process. ...
  7. Step 7: Wait for the Bids.
30 Aug 2022

What is a NFT in a nutshell? ›

NFT stands for Non-fungible token. A non-fungible token is a unique digital asset that cannot be copied, uttered, exchanged, switched, and substituted. It is a unit of data that is stored on a blockchain (Ethereum, Solana, Flow, and Tezos) which is used to verify the authenticity and ownership of a unique asset.

How do I start working with NFTs? ›

How to create an NFT — and why you may not want to
  1. Step 1: Figure out what an NFT is. ...
  2. Step 2: Make sure you actually want to sell an NFT. ...
  3. Step 3: Choose a platform to sell your NFT on. ...
  4. Step 4: Set up a wallet. ...
  5. Step 5: Connect your wallet. ...
  6. Step 6: Create an NFT.
6 Jun 2022

What kind of things are sold as NFTs? ›

Essentially, NFTs can represent any form of digital file, whether that's a jpeg of a piece of art, a video, or even real estate. Turning these files into 'tokens' and securing them on a blockchain make buying, selling and trading these files efficient and reduce fraud.

How do I make and sell on NFT? ›

  1. How to make and sell an NFT. ...
  2. Choose a digital wallet. ...
  3. Set up a digital wallet to pay for your NFT. ...
  4. Add cryptocurrency to your wallet. ...
  5. Connect your wallet to an NFT platform. ...
  6. Upload the file you want to turn into an NFT. ...
  7. Set up an auction for your NFT. ...
  8. Add a description to sell your NFT.
10 Aug 2022

What is a famous example of a non-fungible token? ›

Ethereum was the first blockchain to support NFTs with its ERC-721 standard and this is currently the most widely used. Many other blockchains have added or plan to add support for NFTs. ERC-721 was the first standard for representing non-fungible digital assets on the Ethereum blockchain.

How many people own an NFT? ›

Notably, the number of wallets trading in NFTs expanded considerably in 2021, from roughly 545,000 in 2020 to around 28.6 million in 2021. The most valuable items were usually the most volatile.

Can clothes be a NFT? ›

Fashion NFTs can take many forms, including virtual garments that customers can wear within virtual environments, digital content with which owners can interact, and even digital twins of physical creations.

What type of NFTs are in demand? ›

Different Types of NFTs
  • Collectible items/Trading cards.
  • Artwork.
  • Event tickets.
  • Music and media.
  • Gaming.
  • Big Sports Moments.
  • Virtual Fashion.
  • Real-world assets.
26 Jul 2022

Can NFTs make U Rich? ›

NFTs can make you rich in several ways. You can become rich by creating your own NFTs, buying and flipping existing NFTs, investing in NFTs for long-term profit (building wealth), or by creating your own business and incorporating NFTs into your brand.

Why is my NFT not selling? ›

Lack of Hodlers. Another reason that items in NFT collections fail to sell is a lack of collectors wanting to hodl their investment. Some of the hottest collections out there suffer from flippers looking to buy low and sell for a modest or even high profit.

Can you just Screenshot an NFT? ›

Yeah, you can. People try to compare screenshotting NFTs to copying paintings, but it's more like hiring a professional painter to repaint a painting that they made. The only difference is that the owner of an NFT can sell it to another lifeless basem*nt dweller for some money. There is no point in keeping NFTs.

Who actually buys NFTs? ›

Who are those individuals?
  • Age – 18 – 34 years.
  • Gender: Men tend to collect, buy, or invest in NFTs more than women.
  • Income – $25,000 to $150,000 annual salary.
  • Countries: Asian countries are the highest NFT buyers.
12 Aug 2022

Why is it so expensive to buy an NFT? ›

NFTs can be very expensive (or valuable, depending on who you ask) because they somehow managed to do the impossible: introduce scarcity into the global digital market. An NFT isn't just an overly-expensive way to buy an image — it's a way to own it.

Can I sell my own photo as NFT? ›

Starting the process of selling your photos as NFTs is pretty straightforward once you've connected your digital wallet to the platform you choose to sell. Let's go through how to sell a photo as NFT on two of the most popular NFT photography marketplaces – OpenSea and Foundation.

How do NFTs make money as a beginner in 2022? ›

To market an NFT, you first need to create a prototype or model of the asset. You can then use marketing tools like social media and online ads to get people interested in your NFT. You also need to build a community around your NFT so people can support it and help it grow.

Is NFT a good investment? ›

Are NFTs a Good Investment? Investing in an asset just because it's tokenized into an NFT is not a good idea. NFTs by themselves are not investments, so make sure to understand the value of the underlying asset that you are buying before you purchase the NFT.

How much does it cost to start NFT? ›

On average, the cost of creating NFT ranges from $0.05 to over $150. The cost of creating NFTs depends on various factors such as the cost of blockchain, gas fee, marketplace account fee, listing fee etc. Ethereum and Solana are the most expensive and cheapest blockchain, respectively.

Can I create an NFT for free? ›

#Go to 'My Collection' and Click on 'Create new collection' on the OpenSea dashboard. #Set up your NFT artwork, by adding your file, add logo, banner, name and description. #Choose Polygon blockchain for minting your NFT without paying gas fee.

Can you sell paintings as NFT? ›

NFTs (non-fungible tokens) are one-of-a-kind digital assets. Given they're digital in nature, can physical works of art be turned into NFTs? The short answer is that yes, physical artworks can be minted and sold online as NFTs.

Can you get sued for making a NFT? ›

And, last month, luxury brand Hermès sued the artist Mason Rothschild for creating NFTs of the French company's Birkin bags. So far, lawsuits over NFTs have targeted individuals who create, or mint, NFTs rather than marketplaces such as OpenSea, where users can create, buy, and sell the digital assets.

Can a normal person buy NFT? ›

While anyone can view the NFT, only the buyer has the status of being the official owner – a kind of digital bragging rights. Buying an NFT of an image or video does not normally mean the buyer gets the copyright of the underlying item.

Who owns the most expensive NFT in the world? ›

The First 5000 Days - $69.3 million

The NFT was sold to Singapore-based crypto investor Vignesh Sundaresan, also known as MetaKovan, who is also the founder of the Metapurse NFT project.

What kind of art is famous in NFT? ›

What is the best NFT art? If by best you mean, most expensive and most popular NFT art, then Beeple's piece titled “Everydays – The First 5000 Days” is the best NFT art so far. The masterful collage piece took 13 years to make and includes over 5000 digital images and sold for $69.3 million.

What happens after I buy an NFT? ›

What do you get when you buy an NFT? Since an NFT can only have one owner at any one time, when you buy an NFT, you purchase the exclusive ownership of a particular digital asset. However, this doesn't mean that you own the exclusive rights as to who gets to look at or share that particular artwork.

Which NFT should I buy cheap? ›

  • Best NFTs To Buy.
  • Azuki NFTs.
  • CryptoPunks NFTs.
  • Lucky Block NFTs.
  • PolygonPunks NFTs.
  • Prime Ape Planet NFTs.
  • VeeFriends NFTs.
  • World of Women NFTs.
4 days ago

Is NFTs worth selling? ›

The inequality

It was found that 33.6% of NFT sellers sell their NFTs for $100 or less, and they're the largest percentile. Those who make the most money, hitting the generally recommended sell-price of 0.5 ETH for NFTs, and above, is a disappointing 1.8%.

What are NFTs and why do people buy them? ›

People buy NFTs for gaming

Some games require you to buy NFTs before you can play. Others are free to play, then you earn or purchase NFTs as part of the game. People who buy gaming NFTs do so because it lets them own a piece of the game. They like that they can trade or sell their NFTs with other players.

Are NFTs a good investment? ›

Are NFTs a Good Investment? Investing in an asset just because it's tokenized into an NFT is not a good idea. NFTs by themselves are not investments, so make sure to understand the value of the underlying asset that you are buying before you purchase the NFT.

Why do people buy NFTs so expensive? ›

If you're wondering how non-fungible tokens (NFTs) — essentially tokenized JPEGs — have sold for millions of dollars in the past few years, here's the short answer that most people would give you: It's because they're art, and art is inherently valuable.

Why are people spending so much on NFTs? ›

The psychology behind the NFT craze

That's because NFTs aren't replicable: Their ownership and validity can be tracked and verified from the moment their data gets uploaded to a blockchain ledger. Rarity is a valuable trait in any collector's world, and each NFT is guaranteed to be unique.

Why do people sell NFTs to themselves? ›

Some people repeatedly sell themselves their own NFTs in an attempt to artificially inflate their prices, according to a report published Wednesday.

Can you just Screenshot an NFT? ›

Yeah, you can. People try to compare screenshotting NFTs to copying paintings, but it's more like hiring a professional painter to repaint a painting that they made. The only difference is that the owner of an NFT can sell it to another lifeless basem*nt dweller for some money. There is no point in keeping NFTs.

What are the disadvantages of NFT? ›

NFT Cons
  • Physical Art Can't Be Digitized. The reasons to own physical art and the reasons to own digital art are often different. You can't digitize physical art. ...
  • Uncertain Value. Even for experts, NFTs are confusing assets. ...
  • Environmental Cost. The environment is a hot topic of debate as of late.

What is the best NFT to buy? ›

The 14 Best NFTs to Buy in - An Overview
  • Tamadoge - Overall Best NFT Project to Buy.
  • Copium Protocol - Innovative Cloud Mining NFT Project.
  • Battle Infinity - NFT-based Fantasy Sports Platform with DeFi Elements.
  • Lucky Block - NFT Competition Platform with Huge Prizes.
  • MetaBlaze - New NFT Presale with Unique Rewards System.
3 Oct 2022

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