NFT meaning: what is a non-fungible token?
NFT stands for non-fungible token: a unique token on a blockchain that records who owns a specific digital item, such as a piece of digital art, a collectible, a game item or a ticket. Unlike bitcoin or euros, where every unit is interchangeable, each NFT has its own identity and can’t be swapped one-for-one with another.
What NFT stands for
NFT is short for non-fungible token. “Fungible” means interchangeable: one €10 note is worth exactly the same as any other €10 note, and one bitcoin is the same as any other bitcoin. Non-fungible assets are the opposite. A concert seat, a painting or a house is unique, so you can’t simply swap it for another of the same kind.
An NFT applies that idea to a digital asset. NFTs represent ownership of unique digital assets: the token itself is a record on a digital ledger (a blockchain) with a unique identifier, an owner address and a link to the item it represents. In most cases, the NFT is not the image or video itself. The NFT acts as a digital certificate, a digital representation of ownership that points to the file. The first NFT is often said to be “Quantum”, minted by artist Kevin McCoy in 2014.
Non-fungible assets vs fungible tokens
The difference between fungible tokens and non fungible tokens is easiest to see side by side:
| Fungible tokens | Non-fungible tokens (NFTs) | |
|---|---|---|
| Examples | Bitcoin, ether, stablecoins (digital currency) | Digital art, collectibles, tickets |
| Interchangeable | Yes, each unit has the same value | No, each token is unique |
| Divisible | Yes, into tiny fractions | Usually not |
| Common standard on Ethereum | ERC-20 | ERC-721 and ERC-1155 |
Uniqueness does not create value by itself. The value of an NFT depends entirely on demand, and a one-of-a-kind NFT can still be worth nothing if nobody wants it.
How NFTs work
NFTs work through blockchain technology and smart contracts: small programs on a blockchain that create the tokens, record ownership information and handle transfers. Creating a new token is a process called minting.
- Minting. A creator uses a smart contract to mint NFTs. Each token gets a token ID and metadata, such as a name, a description and a link to the digital file.
- Ownership. The blockchain records which wallet address owns each token. Anyone can check this, and no central authority can quietly change it.
- Transfers. When you buy or sell, the smart contract moves the token to the new owner’s address, and the blockchain transactions are public.
NFTs work across blockchains
The Ethereum blockchain is the best-known home for NFTs, using the ERC-721 standard for single unique tokens and ERC-1155 for contracts that hold many token types. Solana, Polygon and other chains also host NFTs. The blockchain you use determines the fees and which wallets and marketplaces work with your NFT.
What an NFT represents: digital art, collectibles and more
An NFT can represent almost any digital content, and sometimes physical assets:
- Digital art and digital collectibles. The use that made NFTs famous in the digital art world. Digital artists sell digital artwork directly to collectors.
- Music and video clips. Musicians sell limited editions or give holders access to extras.
- Gaming items and virtual worlds. In-game items, skins and virtual real estate that players can trade, sometimes only on the game’s own proprietary marketplace.
- Tickets and memberships. An NFT can work as an event ticket or a pass to a community.
- Real world assets. Some projects link NFTs to physical objects such as watches or wine, but the token is only as good as the company that holds the item.
Owning an NFT is not the same as owning the intellectual property. Unless the licence says otherwise, the creator keeps the copyright, and anyone can still copy the digital image.
NFT collections and the NFT market
An NFT collection is a series of related tokens from one smart contract, often thousands of images generated from combined traits. Rarer traits usually trade at higher prices than other NFTs in the same collection. Well-known examples are CryptoPunks and the Bored Ape Yacht Club, which gained popularity during the 2021 boom.
The NFT market works in two stages. In the primary sale, you mint or buy directly from the creator, often at a fixed price. After that, NFT owners trade on an open marketplace, for example popular NFT marketplaces such as OpenSea or Magic Eden, where prices depend entirely on demand. Liquidity can be thin: an NFT listed for sale may find no buyer at all.
NFTs, crypto wallets and NFT platforms
To buy an NFT you need a crypto wallet that supports the right blockchain. The wallet holds the private keys that control your tokens, so whoever has your seed phrase controls your NFTs too. Some NFT platforms are custodial and hold the tokens for you, which is easier but means trusting the platform.
A worked example in euros
Say you buy an NFT for €400 and pay about €3 in gas fees. A year later you sell it for €500 on a marketplace that takes 2.5%, and the collection charges a 5% creator royalty (illustrative rates; check the actual ones).
- Fees on the sale: 7.5% of €500 = €37.50
- You receive: €500 − €37.50 = €462.50
- Your result: €462.50 − €403 = €59.50 before tax and further gas fees
Selling NFTs only works if a buyer appears. If nobody bids, the NFT can’t be sold at any price, and that is the real risk with most NFT projects.
How to create an NFT
To create an NFT, a creator chooses a blockchain and an NFT platform, connects a crypto wallet, uploads the digital file and adds a name, description and any royalty. The platform’s smart contract then mints the token, and the creator pays the gas fee (some platforms only mint at the moment of the first sale). Only create NFTs of work you own the rights to: minting someone else’s art can infringe copyright, and marketplaces can remove such listings.
How to buy an NFT safely
Buying an NFT takes a few more steps than buying a coin, and each one is a chance for a scammer. Before any NFT purchase, follow these steps.
- Set up a wallet that supports the collection’s blockchain, and write your seed phrase down offline.
- Fund it with crypto bought on a licensed exchange, then withdraw it to your wallet.
- Verify the collection. Take the official contract address from the project’s own website, never from ads or direct messages.
- Check the total cost: price, marketplace fee, creator royalty and gas.
- Read every wallet request before you sign it, and reject anything you don’t understand.
NFT risks and EU rules
NFTs carry the risks of crypto plus a few of their own:
- Price risk. Many collections that sold for thousands of euros in 2021 now trade for a fraction of that, or not at all.
- Scams. Fake minting sites, copied collections and rug pulls, where creators abandon a project after selling out, are common in the NFT space.
- Off-chain storage. If the image is stored on an ordinary server rather than stored on the blockchain or a distributed network, the link can break.
- Wallet drainers. A malicious “approve” request can give a scammer access to every NFT in your wallet. Only connect your wallet to sites you have checked.
MiCA, the EU’s crypto law, excludes crypto-assets that are unique and not fungible, so most NFTs and NFT marketplaces are not licensed or supervised under it. NFTs issued in large series or split into fractions can still fall under MiCA. In practice, you have less protection buying NFTs than buying bitcoin on a licensed exchange.
Tax authorities also treat NFTs as assets, so a profitable sale or a valuable collection can have tax consequences. Check the rules in your country before you start, and only spend money you can afford to lose completely.
Related terms
Questions people ask
What does NFT stand for?
NFT stands for non-fungible token. "Non-fungible" means it can't be swapped one-for-one with another token, because each one is unique.
What is the most famous NFT?
One of the best known is Beeple's "Everydays: The First 5000 Days", a digital artwork whose NFT sold at Christie's for $69.3 million in March 2021. Collections such as CryptoPunks and Bored Ape Yacht Club also became widely known.
Are NFTs still worth anything?
Some NFTs still trade at high prices, but many have little or no resale value today. An NFT is only worth what another buyer will pay, and for most collections that demand has fallen sharply since the 2021 boom.
Do you own the copyright when you buy an NFT?
Usually not. You own the token that points to the work, and the creator normally keeps the copyright unless the licence explicitly transfers rights to you. Check the collection's terms before buying.
Are NFTs regulated under MiCA?
Mostly not. MiCA excludes crypto-assets that are unique and not fungible, so most NFTs and NFT marketplaces fall outside it. NFTs issued in large series or split into fractions can still count as regular crypto-assets.