What Are NFTs? A Beginner's Guide to Non-Fungible Tokens

Non-fungible tokens (NFTs) are digital assets that use blockchain technology to link ownership to one-of-a-kind physical or digital items

Non-fungible tokens (NFTs) are a type of digital asset that uses blockchain technology to link ownership to one-of-a-kind physical or digital items, such as artwork or music.

NFTs are non-fungible, meaning each token has unique properties and isn't worth the same amount as similar tokens. Art and collectibles are often considered non-fungible since only one original exists.

Digital art is the most popular type of NFT and heavily contributed to the NFT boom in 2021. However, the decentralized technology can be applied to various virtual and tangible assets, including real estate and virtual works.

NFT ownership involves security risks, including high volatility and the potential for substantial loss. If you're a cryptocurrency investor, these concerns likely sound familiar.

The NFT market experienced a major downturn in 2022 and 2023. Despite these challenges, the NFT market remains resilient and still an active community of sellers and traders. Developers are exploring new ways to use NFTs and blockchain technology by adapting emerging trends like gaming, the metaverse, and improvements in security, accessibility, and user experience.

Many of the best cryptocurrency exchanges provide investors access to the NFT market.

The first NFTs emerged in 2014, but the market didn't start gaining traction until 2017, when high-demand digital art pieces like Rare Pepes and CryptoPunks were released.

NFTs' popularity skyrocketed in 2021, boosted by celebrity endorsements from big names like Snoop Dogg and Paris Hilton. Even popular brands like Gucci, Coca-Cola, and Budweiser released exclusive NFT collections during this time.

In 2022, the NFT market began to fall as it became oversaturated, with over 1.5 million NFTs actively traded each month.

At the same time, FTX, one of the key players in the crypto and NFT industry, filed for bankruptcy. Popular crypto coins TerraUSD and LUNA lost nearly all their value, costing investors over $60 million. All these factors, plus various scams and fraudulent activity, led to the fall of NFTs, making many digital assets practically worthless.

Since the crash, the NFT market has integrated greater technological advancements to improve its efficiency and security on the blockchain network. It has reached beyond digital art to adopt real-world assets (like tickets and memberships), virtual worlds, fashion, and real estate.

Although nowhere near its 2021 high, NFT appears to be steadily recovering from its fall and adopting stronger regulatory practices and greater use cases.

You can buy, sell, trade, and create NFTs from online exchanges or marketplaces. The creator or current owner may choose a specific price. Or, there may be an auction, and you'll have to bid on the NFT. Depending on the marketplace, different fees may be associated with each transaction.

Ethereum is the primary blockchain network for NFTs, in part because it uses token standards that allow users to build their applications.

Token standards are application-level specifications that determine how a particular digital token functions, enable interactions between applications and smart contracts, and lay out the foundation rules of the asset. Anyone can create token standards, but standards must be reviewed and accepted by the blockchain network development community.

The two most popular token standards are:

Different types of digital goods can be "tokenized," such as artwork, items in a game, and stills or videos from a live broadcast. NBA Top Shots is one of the largest NFT marketplaces. The most popular types of NFTs are:

As the underlying technology and concept advance, NFTs could have many potential applications beyond digital art and videos. For example, a school could issue an NFT to students who have earned a degree and let employers easily verify an applicant's education. Or, a venue could use NFTs to sell and track event tickets, potentially cutting down on resale fraud.

As the NFT market matures and enables innovative business models, it could become a valuable tool for enhancing efficiency and accessibility in verifying the authenticity of assets.

NFTs offer a unique set of benefits, especially regarding verifiable ownership.

Since NFTs are securely recorded on a blockchain, there's a level of insurance that assets are one-of-a-kind. This technology can also make it difficult to alter or counterfeit NFTs.

"By creating an NFT, creators are able to verify scarcity and authenticity to just about anything digital," says Solo Ceesay, cofounder and CEO of Calaxy. "To compare it to traditional art collecting, there are endless copies of the Mona Lisa in circulation, but there is only one original. NFT technology helps assign the ownership of the original piece."

When you buy an NFT, other people may be able to make copies of the image, video, or digital item you own. But, like buying a unique art or limited-series print, the original is typically more valuable. Blockchain technology also makes it easier for the