NFTs, or non-fungible tokens, are one-of-a-kind digital assets. They are the opposite of “fungible” assets, where each unit is interchangeable, as is the case with Bitcoin. In traditional finance, dollar bills are fungible whereas real estate is not.
The relative scarcity of non-fungible crypto has made them popular with different groups of people. These include collectors as well as digital artists who embed an image or video (or at least a link to one) within a token’s underlying code to produce a one-off artwork. More recently, NFTs that are part of collections with a similar style, such as the Bored Ape Yacht Club, have grown in popularity.
Like the rest of crypto, NFTs are tradeable. Most are sold on a marketplace called OpenSea or on similar platforms that support assets on various blockchains like LooksRare or Magic Eden. NFTs are unique but they are also easy to create so that, during the speculative mania of 2021, a flood of tokens of questionable value flooded the market—including algorithmically generated squiggles, some of which fetched millions of dollars.
NFTs are an object of speculation but also a conspicuous marker of wealth. Throughout 2021’s bull run, celebrities replaced Twitter profile pictures with top NFT mugshot collections, like CryptoPunks or Bored Apes. (The celebrities silently removed these images when the market crashed).
NFTs also have potential as tickets, leading sports leagues and music bands to experiment with distributing them to fans. Video game studios are also experimenting with letting players turn in-game weapons or character skins into NFTs. The tokens can also function as membership cards to gated communities; you have to buy a special NFT to enter Gary Vaynerchuck’s VeeCon conferences, for instance.
Although critics deride NFTs as yet another form of excessive speculation, there is something special about owning the definitive version of something. The decentralized nature of crypto—including the blockchains on which NFTs are stored—means no one but the owner can destroy them in most cases.
Primitive NFTs have been around on the Bitcoin blockchain since the early 2010s, but the idea only took hold after an Ethereum project called CryptoKitties went viral in 2017. It used NFTs to sell off cartoon cats, who, at a click of a button, could “breed” their metadata to create a third cat that shared its parents’ traits. The high point for NFTs came in 2021 when the artist Beeple sold one at auction for $69 million.
Most NFT activity takes place on Ethereum and its side-chain Polygon, but some tokens are also registered and traded on other blockchains, including Solana and Tezos.
Go deeper:
NFTs make the internet ownable—Jesse Walden, Variant Fund
NFT subculture—Denis Nazarov, a former Andreessen Horowitz partner
See also:
What is Bored Ape Yacht Club?
What is Ethereum?
Try it:
OpenSea—marketplace for NFTs
NBA Top Shot—an NBA-licensed collectible NFT platform