NFTs function like cryptographic tokens, but unlike cryptocurrencies, NFTs are not usually mutually interchangeable, and so are not fungible. However, the extralegal nature of NFT trading usually results in an informal exchange of ownership over the asset that has no legal basis for enforcement, and so often confers little more than use as a status symbol. An NFT (and, if applicable, the associated license to use, copy, or display the underlying asset) can be traded and sold on digital markets.
It may confer licensing rights to use the asset for a specified purpose. The NFT can be associated with a particular asset – digital or physical – such as an image, art, music, or recording of a sports event. CharacteristicsĪn NFT is a data file, stored on a type of digital ledger called a blockchain, which can be sold and traded. In 2022, the NFT market collapsed a May 2022 estimate was that the number of sales was down over 90% compared to 2021. During their peak, the three biggest NFT platforms were Ethereum, Solana and Cardano. The NFT market has also been compared to an economic bubble or a Ponzi scheme. NFTs have been used as speculative investments and they have drawn criticism for the energy cost and carbon footprint associated with some types of blockchain, as well as their use in art scams. The trading of NFTs in 2021 increased to $17 billion over just $82 million in the previous year. An NFT does not restrict the sharing or copying of its associated digital file and does not prevent the creation of NFTs that reference identical files. The ownership of an NFT as defined by the blockchain has no inherent legal meaning and does not necessarily grant copyright, intellectual property rights, or other legal rights over its associated digital file. Proponents claim that NFTs provide a public certificate of authenticity or proof of ownership, but the legal rights conveyed by an NFT can be uncertain. Because NFTs are uniquely identifiable, they differ from cryptocurrencies, which are fungible. NFTs typically contain references to digital files such as artworks, photos, videos, and audio. NFTs can be created by anybody, and require few or no coding skills to create. The ownership of an NFT is recorded in the blockchain and can be transferred by the owner, allowing NFTs to be sold and traded. It cannot be copied, substituted, or subdivided.
Illustration of a non-fungible token generated by a smart contract (a program designed to automatically execute contract terms)Ī non-fungible token ( NFT) is a unique digital identifier that is recorded on a blockchain, and is used to certify ownership and authenticity.
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