What is an NFT?

An NFT is a unique digital token recorded on a blockchain. The letters stand for non-fungible token. Each one is tied to a specific item, such as an artwork, a collectible or a ticket, and the blockchain shows which wallet owns it.

What does non-fungible mean?

Something is fungible when every unit is interchangeable with every other. One dollar bill is worth the same as any other dollar bill, and one bitcoin is the same as another.

Something is non-fungible when each unit is distinct. A house, an original painting and a numbered concert seat are examples.

Most crypto assets are fungible. An NFT is a token built to be the opposite: every one carries its own identification number, and no two in a collection are the same. The guide to how NFTs work covers the mechanics.

What do you actually own?

You own the token. The blockchain, a shared public record kept by many computers, lists the NFT against your address, and only the holder of that address's keys can sell or transfer it. The token sits in a crypto wallet in the same way coins do.

What the token gives you beyond that depends on the terms set by its creator. Three points often surprise newcomers:

• Copyright usually stays with the creator. Owning an NFT of an image does not, by default, give you the right to reproduce or sell copies of that image.
• The file is usually not on the blockchain. Most NFTs contain a link to an image stored elsewhere. If that storage disappears, the token can end up pointing at nothing.
• Anyone can still view or copy the picture. The NFT records who holds the token. It does not stop others from saving the image.

Supporters compare this to owning a signed original when prints are everywhere. Critics say the buyer is paying for a receipt.

Why did NFTs become famous?

Early collections such as CryptoPunks appeared on the Ethereum blockchain in 2017. NFTs reached a mass audience in 2021, when prices and trading soared. In March of that year the auction house Christie's sold an NFT by the artist Beeple for $69.3 million.

The market fell steeply from 2022 as crypto prices dropped, and many collections lost most of their market value. The technology is still used for art, game items, tickets and memberships, as the guide to what NFTs are used for describes.

What are the risks?

NFT prices rest on what the next buyer will pay, and an NFT can be hard to sell at any price when interest fades. The market has also seen stolen artwork sold as NFTs, fake copies of popular collections, trades between a seller's own wallets to fake demand, and projects whose creators vanished with buyers' money, a scheme known as a rug pull.