Skip to content

What Is an NFT? a Guide to Non-Fungible Tokens

Paid non-client promotion: Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate investing products to write unbiased product reviews.

The non-fungible tokens (NFTs) art and collection craze has taken the world by storm as one of the hot “must-have” items of the digital age. Over the last few years, investing in riskier digital assets like cryptocurrencies and NFTs has become increasingly normalized, and remains a hot topic of debate.

Some influencers and mainstream celebrities have publicly jumped on the NFT trend not only as investors but also as artists. Paris Hilton, Snoop Dogg, Ellen DeGeneres, and Tony Hawk are just a few examples of celebrities who released their own minted NFT artworks and collections for trading.

But what makes these digital assets so valuable? How are NFTs made? Are they safe to invest in, and why are people paying so much to own them?

Here’s everything you need to understand about NFTs, how they are made, and who should invest in them.

Digital currencies like crypto can be traded on the best cryptocurrency exchanges like Kraken and eToro USA for an array of investment options, low fees, and trading tools. You can also check out the best bitcoin wallets to securely store your digital assets.

Fund your first taxable investment account with at least $500 in the first 30 days of account opening and earn a $50 bonus.

$0 for stock trades. 0.25% for automated investing (0.06% to 0.13% for fund fees)

Wealthfront is one of the best robo-advisor options if you’re in search of low-cost automated portfolio management, and one of the best socially responsible investing apps for features like tax-loss harvesting, US direct indexing, and crypto trusts.

NFT stands for “non-fungible token.” At a basic level, an NFT is a digital asset that links ownership to unique physical or digital items — such as works of art, real estate, music, or videos. NFTs are bought and sold along the blockchain (the same technology behind cryptocurrencies), and are usually purchased with cryptocurrencies too, like ether (the main currency used to purchase NFTs).

NFTs can be considered modern-day collectibles. They’re bought and sold solely online, don’t have a physical equivalent, and represent digital proof of ownership of any given item. Since NFTs are securely recorded on a blockchain, there’s a level of insurance that assets are one-of-a-kind as this technology can also make it difficult to alter or counterfeit NFTs.

As NFTs for digital artwork have sold for millions of dollars, to say they’re popular could be an undersell. But sales rapidly dropped after the FTX fallout and the 2022 bear market that stirred the US economy.

Between June 2021 and June 2022, NFT sales hit $29 billion. According to the Balthazar NFT Marketplace, the NFT trade volume in April 2023 was around $1.54 billion, which is a 22.5% drop compared to March. As of now, the projected total revenue is projected to be under $21 billion in 2023.

“By creating an NFT, creators are able to verify scarcity and authenticity to just about anything digital,” says Solo Ceesay, co-founder and CEO of Calaxy. “To compare it to traditional art collecting, there are endless copies of the Mona Lisa in circulation, but there is only one original. NFT technology helps assign the ownership of the original piece.”

To really get a handle on NFTs, it’s helpful to get familiar with the economic concept of fungibility.

Selling NFTs has been a lucrative business in the art world. Unfortunately, NFT sales took a hit in June 2022 with the bear market and falling more than 80% (to around $167 million) from its peak of nearly $1 billion in January. Here are some of the highest NFT sales from the last few years.

Other people may be able to make copies of the image, video, or digital item that you own when you buy an NFT. But, similar to buying a unique piece of art or limited-series print, the original could be more valuable.

Many NFTs are created and stored on the Ethereum network, although other blockchains (such as Flow and Tezos) also support NFTs. Because anyone can review the blockchain, the NFT ownership can be easily verified and traced, while the person or entity that owns the token can remain pseudonymous.

Different types of digital goods can be “tokenized,” such as artwork, items in a game, and stills or video from a live broadcast — NBA Top Shots is one of the largest NFT marketplaces. While the NFT that conveys ownership is added to the blockchain, the file size of the digital item doesn’t matter because it remains separate from the blockchain.

Depending on the NFT, the copyright or licensing rights might not come with the purchase, but that’s not necessarily the case. Similar to how buying a limited-edition print doesn’t necessarily grant you exclusive rights to the image.

As the underlying technology and concept advance, NFTs could have many potential applications that go beyond the art world. For example, a school could issue an NFT to students who have earned a degree and let employers easily verify an applicant’s education. Or, a venue could use NFTs to sell and track event tickets, potentially cutting down on resale fraud.

Simply put, minting an NFT means you are turning a digital file (like a JPEG, GIF, or PNG) into a digital asset or crypto collectible on the blockchain. When your unique token is published on the blockchain, you’ll be able to sell it. You’ll need to pay a small amount of cryptocurrency to mint an NFT.

You can create a collectible as a single image or as multiple images. Depending on the marketplace you use to host your NFT, you may be able to add a name, description, and other metadata to your token. You’re also able to set royalty amounts on your NFT, which are percentages you will make from every subsequent sale on the secondary market.

NFTs and cryptocurrencies rely on the same underlying blockchain technology. NFT marketplaces may also require people to purchase NFTs with cryptocurrency. However, cryptocurrencies and NFTs are created and used for different purposes.

Cryptocurrencies aim to act as currencies by either storing value or letting you buy or sell goods. Cryptocurrency tokens are fungible tokens, similar to fiat currencies like a dollar. NFTs create one-of-a-kind tokens that can show ownership and convey rights over digital goods.

You can buy, sell, trade, and create NFTs from online exchanges or marketplaces. The creator or current owner may choose a specific price. Or, there may be an auction, and you’ll have to bid on the NFT. Here are some of the most popular NFT marketplaces:

Important: NFTs can be highly speculative assets. Some people have made thousands or millions of dollars selling NFTs. Others spend a lot of money on a digital asset that winds up being worthless.

The sign-up process can vary depending on the marketplace. Generally, you’ll buy NFTs using a cryptocurrency, such as ether (Ethereum’s native cryptocurrency), although the price may also be listed in dollars. Depending on the marketplace, there may be different fees associated with each transaction.

The high-priced and headline-making NFT craze is also attracting scammers and fraudsters, so investors should beware. Some may try to sell you something and tell you it’s an NFT when it’s not. Others might claim they have the right to sell an NFT of a piece of work they don’t own and didn’t create. Some of the most common acts of fraud in the NFT marketplace include:

What is considered one of the largest NFT scams was a rug pull scheme in 2022. Le Anh Tian, the founder of Baller Ape Club, launched the collection only to delete the project’s entire website, launder the project’s $2.6 million investor funds, and transfer it across multiple blockchains (aka chain-hopping). Le Anh Tuan was charged by the Department of Justice with conspiracy to commit wire fraud and conspiracy to commit international money laundering on June 30, 2022. The lawsuit has yet to be fully resolved.

The best way to avoid getting scammed is to thoroughly research and fact-check information before buying or selling an NFT.

While there may be many practical applications for NFTs in the future, they’re primarily used with digital art today.

“For creators, NFTs create a seamless way to sell digital art that might not have much of a market. Additionally, there are ways in which creators can get paid fees for each subsequent sale of the art,” says Ceesay. “On the flip side, collectors are able to speculate on digital art as well as have bragging rights on rare collectibles on the chain.”

If you’re considering purchasing an NFT as an investment, know that there’s no guarantee it will increase in value. While some NFTs sell for thousands or millions of dollars, others may remain or become worthless.

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards.Please note: While the offers mentioned above are accurate at the time of publication, they’re subject to change at any time and may have changed, or may no longer be available.**Enrollment required.

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards.

Please note: While the offers mentioned above are accurate at the time of publication, they’re subject to change at any time and may have changed, or may no longer be available.