NFT (Non-Fungible Token)
A unique digital token on a blockchain representing ownership of an asset (art, collectibles, game items). Unlike crypto coins, each NFT is distinct. NFTs exploded in 2021 then crashed. Used for digital art, game items, and membership passes. Controversial but the tech has legitimate uses.
- Digital art and collectibles with provenance.
- Game items with real ownership.
- Membership/access tokens.
- Assets that don't benefit from on-chain ownership.
- When off-chain solutions work fine.
- Speculative flipping (risky).
Definition
An NFT is a unique token on a blockchain (usually Ethereum) with a distinct ID and metadata. Standards: ERC-721 (unique), ERC-1155 (semi-fungible). Metadata (image, attributes) is often stored off-chain (IPFS, Arweave) with a URI on-chain. Marketplaces: OpenSea, Blur. Royalties can be encoded.
Why it exists
To prove ownership and provenance of digital assets that are otherwise infinitely copyable, enabling digital scarcity, collectibles, and on-chain ownership of game items and art.
How it works
Mint: deploy or call a contract that creates a new token ID with metadata URI. The token is transferred to your wallet. Metadata (image, traits) is fetched from the URI. Trade: list on a marketplace, buyers purchase, ownership transfers. Royalties pay the creator on secondary sales.
Scaling limits
Metadata often off-chain (IPFS can be slow/unreliable). Gas costs for minting/trading. Speculative market. Copyright doesn't automatically transfer with the NFT. Environmental concerns (less since PoS).
Cost shape
Minting: gas cost. Marketplace fees (2.5-5%). Royalties (5-10% to creator). Storage for metadata (IPFS/Arweave).
Alternatives
- Centralized databases (traditional game items) — Simple but no real ownership/portability.
- Soulbound tokens (non-transferable) — For identity/credentials, not tradeable.
Failure modes
- Off-chain metadata availability (IPFS).
- Speculative bubbles.
- Copyright confusion.
- Marketplace centralization.
- Wash trading.