Blockchain
NFT
Non-Fungible Token - a unique digital asset on a blockchain representing ownership of items like art, music, collectibles, or in-game items. Unlike cryptocurrencies, each NFT is distinct.
Last updated: January 5, 2025
What is an NFT?
An NFT (Non-Fungible Token) is a unique digital asset stored on a blockchain. Unlike Bitcoin or ETH where each unit is identical (fungible), each NFT is unique and cannot be exchanged 1:1 with another.
Fungible vs. Non-Fungible
| Type | Example | Property |
|---|---|---|
| Fungible | 1 BTC = 1 BTC | Interchangeable |
| Non-Fungible | NFT #1234 ≠ NFT #5678 | Unique |
How NFTs Work
Technical Basics
- Digital asset created
- Minted on blockchain (usually Ethereum)
- Unique token ID assigned
- Ownership recorded permanently
- Can be bought, sold, transferred
Smart Contract Standards
- ERC-721 - Standard NFT format
- ERC-1155 - Multi-token standard
NFT Use Cases
Digital Art
- Original artwork ownership
- Artists receive royalties on resales
- Verifiable authenticity
Collectibles
- Trading cards
- Profile pictures (PFPs)
- Limited editions
Gaming
- In-game items
- Character skins
- Virtual land
Music & Media
- Album releases
- Concert tickets
- Exclusive content
Real-World Applications
- Event tickets
- Certificates
- Real estate deeds
Famous NFT Collections
| Collection | Blockchain | Notable Sale |
|---|---|---|
| CryptoPunks | Ethereum | $23.7M |
| Bored Ape Yacht Club | Ethereum | $3.4M |
| Art Blocks | Ethereum | $7.7M |
| Pudgy Penguins | Ethereum | $400K+ |
Buying NFTs
Where to Buy
- OpenSea (largest marketplace)
- Blur (trader-focused)
- Magic Eden (Solana/multi-chain)
- Exchange NFT marketplaces
Steps to Buy
- Set up crypto wallet (MetaMask, Phantom)
- Buy ETH/SOL on exchange (Coinbase, Binance)
- Transfer to wallet
- Connect wallet to marketplace
- Purchase NFT
Costs to Consider
- NFT price
- Gas fees (can be high on Ethereum)
- Marketplace fees (usually 2.5%)
Selling NFTs
Listing Options
- Fixed price
- Auction (English or Dutch)
- Accept offers
Fees When Selling
- Marketplace fee (2-5%)
- Creator royalties (0-10%)
- Gas fees for transactions
NFT Risks
Market Risks
- Highly volatile prices
- No guaranteed liquidity
- Many projects fail
Technical Risks
- Smart contract bugs
- Metadata stored off-chain
- Platform dependence
Fraud Risks
- Fake collections
- Stolen art
- Rug pulls
Evaluating NFTs
What to Check
- Team/artist reputation
- Community engagement
- Utility (if any)
- Floor price trend
- Trading volume
Red Flags
- Anonymous team
- Unrealistic promises
- Wash trading (fake volume)
- Copied artwork
NFTs and Taxes
Tax Events
- Selling NFT = capital gains/loss
- Receiving NFT as payment = income
- Trading NFT for NFT = taxable
Record Keeping
- Track purchase price
- Note sale price
- Keep transaction records
NFT Storage
What You Actually Own
- Token pointing to metadata
- Metadata points to image/asset
- Asset may be stored off-chain
Best Practices
- Check where assets are stored
- IPFS is more decentralized
- Some NFTs have on-chain art
Future of NFTs
Trends
- Gaming integration expanding
- Real-world asset tokenization
- Identity and credentials
- Membership and access passes
Challenges
- Environmental concerns (improving with PoS)
- Mainstream adoption
- Regulatory clarity
Ready to Start Trading?
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