What is an NFT? Beginner's Guide to Non-Fungible Tokens (NFTs)

Contents

NFTs were the hot topic of 2021 and even broke into the mainstream. News headlines used to report on hundred-thousand-dollar high-profile sales, but it seems that the craze has calmed down by now. And yet, the NFT space is still around and thriving. With this guide, the ChangeHero team makes a contribution to NFT education, where you will find NFTs explained simply for beginners to learn or clear things up.

Key Takeaways

The term NFT stands for ’non-fungible token’. If we explain NFT for dummies, it is a unique asset on a blockchain that cannot be used interchangeably with other tokens;
The uniqueness of the NFT standards makes them useful in signifying ownership and/or rights to use. This property of non-fungible tokens (NFTs) is finding use in art and distribution, blockchain services, and games;
The most popular NFT platforms and projects these days are collections such as Crypto Punks and Bored Ape Yacht Club, and Web3 games.

What are NFTs?

First of all, let’s define the term NFT (or NFTs) and sort its definition through: what is a non-fungible token? What does non-fungibility mean?

Fungibility is a property of an asset that points to it being interchangeable with any other asset of the same value. Money is normally fungible, meaning for example that any dollar bill is perceived to be worth $1.

On the contrary, non-fungibility is synonymous with uniqueness. Even if two non-fungible tokens have the same value (for example, represent the same in-game item), they are not interchangeable.

Where are NFTs stored? NFT stands for “non-fungible token” and refers to a blockchain token type. Blockchain tokens, in turn, are a type of digital asset issued on a blockchain with the help of a smart contract. In the case of NFTs, the smart contract defines the properties of each unique token.

The token is only one part of the digital asset, though. Its value comes from the contents: digital art, virtual real estate, or audio files — there are virtually no limits to what can get attached to an NFT. However, due to the limitations of blockchain technology, the contents rarely get embedded directly instead of being meta-data. Relying on off-chain infrastructure like IPFS to store the content and embedding a link to the token is common.

Is an NFT a cryptocurrency? No, unlike this type of tokens, regular crypto coins and tokens are interchangeable (fungible, if you will).

How can this be useful? Like in the example above, NFTs can represent virtual in-game assets like items, cards, or real-world assets like art pieces. Each token represents a unique unit of value, even if they belong to the same category.

Why are NFTs important? Basically, non-interchangeability is useful to denote ownership of an asset that the NFT represents.

What exactly is an NFT in even simpler terms?

Do you find the explanation above to be a little verbose and hard to understand? Let’s try a more simple NFT explanation, accessible for absolute beginners or anyone out of the loop.

What is an NFT, explained for dummies? It is a digital token on a blockchain with properties that make each unit unique. This quality makes them fit to serve as proof of ownership.

How Did NFTs Come to Be?

An NFT overview would not be complete without an introduction to their origins. The first blockchain tokens were developed for the Bitcoin blockchain and were essentially non-fungible. They were called Colored coins and are considered predecessors of all modern blockchain tokens.

Colored coins worked thanks to a protocol that we would today call “layer-two” or L2. Another second-layer network to Bitcoin, Counterparty housed the first tokenized directory for Rare Pepes. Each of the entries in the library is unique and represented by its own Counterparty token.

Then, in 2015 Ethereum introduced smart contracts. Now, everyone can issue and transact with tokens even more easily. The only catch is that back in 2015 there was only one token standard — ERC-20.

Nevertheless, Decentraland, CryptoKitties, CryptoPunks, and EnjinCoin started implementing tokenized assets in games and digital art. It was after the success of these projects that the ERC-721 standard for what we now know as NFT was developed and described in a whitepaper in 2018.

How Do Non-Fungible Tokens (NFTs) Work?

Understanding NFTs will come easier if you know how this tech work. NFTs are not exclusive to Ethereum: among the platforms that support them are Ravencoin, Qtum, EOS, TRON… In essence, though, they are the same.

Each token is assigned a digital hash that distinguishes it from every other NFT of its kind even if they are issued with the same smart contract. Naturally, tokens issued with different smart contracts from the very start bear no equivalence to each other at all.

NFTs cannot be directly exchanged with one another because of their unique nature. Instead, they can be put on sale on special marketplaces for a cryptocurrency of choice. These NFT marketplaces are the core of the market for this type of digital asset.

What are NFTs’ other properties?

Indivisibility: there can be no more than a set number and no less than one of an NFT. Some solutions offer fractional ownership of NFTs these days;
Indestructibility: the data is immutably recorded on the blockchain. Like other types of blockchain tokens and coins, NFTs can be burned but it only means giving up ownership;
Verifiable: like any asset on the blockchain, the entire transaction history of an NFT can be tracked and it can be traced back to its original creator.

Relevant Token Standards: Non-Fungible and Semi-Fungible

What are the different types of NFTs? Non-fungible tokens adhere to one of the few standards that codify their properties. In the case of Ethereum, there are two standards commonly used to create NFTs.

NFT Standards: Non-Fungible and Semi-Fungible — Source: @dfinzer - Twitter

ERC-721 is strictly non-fungible and unique. ERC-1155 is semi-fungible and allows for class tracking rather than object tracking.

For example, in a game, ERC-1155 tokens can be used to represent consumable items like ammo or potions. This standard is also handy because it saves computing power of the network, and therefore, transaction fees.

What are NFTs Used For?

NFTs became a huge step in the tokenization of various assets on the blockchain. From virtual tickets to digital art NFTs, the use cases for verifiably unique tokens are countless. But how are non-fungible tokens actually used these days? Here are only a few actual examples:

The most common and valuable category of modern NFTs is digital collectibles. Collections that shaped the market like Cryptopunks and Bored Ape Yacht Club are still some of the top ones.
Web3 games. For example, Ubisoft’s Champions Tactics: Grimoria Chronicles uses NFTs for exclusive player icons and in-game units called champions. Another example from the Epic Games storefront would be a card battler Parallel, where NFTs represent in-game cards.
Unique asset tokenization. Blockchain conferences such as ETHDenver and TOKEN2049 have issued ticket NFTs for their visitors. A less common example would be Galaxy Digital collateralizing a loan with an NFT of a three-century-old Stradivari violin.
Authenticity check. CryptoKicks are a patented product of Nike. These are tokens that are sold together with the shoes and are used to verify the authenticity of the product;
Ownership. Another use case where NFTs can see a lot of potential is music distribution. It cuts out middlemen such as distributors, who claim large shares of musicians’ profits.
Name services like Unstoppable Domains or ENS (Ethereum Name Service) use the NFT standard to create unique human-readable addresses for ETH.

What is NFT Art?

A non-crypto person might hear about these tokens in a couple of contexts: NFT Art or game assets such as cards. Let’s start with the first one and get NFT art explained, because that is an interesting one.

NFTs in regards to digital art carry the exact same meaning as described above, often already carrying an artwork or representing its fraction. So-called NFT art is actually one of the reasons these digital assets made waves in the mainstream but not for an entirely positive reason. Before the NFT market was booming, digital artists who were also into crypto quickly caught onto the collectible aspect of these novel tokens. They started offering unique NFT collections with their art attached to it, giving away ownership over the pieces, hand-made or AI-generated, for profit. However, when the market started attracting serious volumes, it has caused a rise in incidents when artists had their works turned into NFTs and traded without their consent or even knowledge.

Therefore, usually ‘NFT art’ refers to both the token that represents this work on a blockchain and its content. However, depending on the context, it might have some negative connotation rooted in the reputation. Some NFT critics may even allege the term refers to the style which the digital artworks usually attached to NFTs share, although due to the variety of digital artists utilizing this technology, a single distinct style is a reach.

What is an NFT Card?

Now, what are the so-called NFT cards? As we have mentioned, some games utilize this technology to represent in-game assets, such as cards, on a blockchain. Therefore, when we explain it, each card you have in game is also a digital NFT you own in a connected wallet. The purpose of this is to give you an opportunity to freely transfer and trade this token and therefore, card, with other players and even outsiders.

This gimmick is commonly found in games that enable modification of assets attached to the tokens, like the monster battler Axie Infinity. Players can grow their own Axies to trade or rent to other players, receiving real monetary rewards for this. Web3 game enthusiasts proposed cross-game assets, meaning one NFT could represent different items in different games, but this idea has barely seen implementation so far. Due to being usable within their own game only, NFT cards are ascribed value accordingly, and may as well lose all their worth after the end of service, even though they were conceived as a well-meaning solution to this problem.

What are NFTs Criticized For?

The NFT market has received its fair share of criticism for many reasons, valid and overblown alike. Some points still stand while other things have improved over time, as the initial craze died out and builders figured it out.

Lack of Intellectual Property Rights Protection

The most glaring problem is that while NFTs are handy to represent ownership, it does not entitle the owner to copyright. Unless explicitly stated in the process of sale (and that is how large auctions operate), the creator of an artwork retains all rights to use the original artwork.

Moreover, at the peak of the NFT boom, art theft was rampant, when users would mint NFTs of artworks with an original creator not even knowing about it. While NFTs were supposed to let creatives monetize their art without any middlemen, the opposite was happening: middlemen hijacked the art monetization.

Since legally NFTs are worth only as much as the contract implies, the linked content can be taken down. This is far from pleasant to both sides, since creators have to deal with copyright issues and the owner of an NFT ends up with an empty and worthless token.

Market Manipulation

The NFT market inherited both the best and worst practices from its art auction predecessors. Particularly, wash trading which is repeated and coordinated buying and selling to artificially inflate the volume of an asset.

In a study of the Nonfungible.com team, between May 2020 and February 2021, an unnamed marketplace had as much as 28% ($2,252,925.00) volume accounted for by wash trading. 10% more was defined as suspicious.

Independent researchers conclude that it has not gotten better by 2024. By analyzing a larger data set from four popular NFT marketplaces with a special algorithm, they found out that wash trading accounted for up to 22% of the total number of trades and up to 94% in volume on one of them.

Environmental Impact

Although much less of an issue now, when they first attracted wide attention, NFTs were ruthlessly criticized for being energy-intensive and carbon-negative. The reason for that is Ethereum’s Proof-of-Work, which relied on energy-hungry mining, and this electricity was mostly sourced from methods that pollute the environment, such as coal. Since then, Ethereum has transitioned to a much more economical consensus algorithm, Proof-of-Stake, and mining in general has started to warm up to more environmentally-friendly sources of electric power, such as geothermal or wind.

How to Create NFTs?

Good news: making an NFT is not rocket science! Anyone can mint and even put up for auction an NFT with any content they rightfully can with little to no coding skill.

To get your hands on an NFT, you can attach something of value to a new unique nonfungible token. Many platforms have generators that streamline the process of creating NFTs. NFT marketplaces (OpenSea, Rarible, SuperRare), DIY minting platforms (NiftyKit), and even blockchain gaming platforms (Enjin, Flow) offer the tools.

Some of the apps that let you make an ERC-721 token are MetaMask, Mintable, and Receiptchain. The best shot for creating an NFT on another blockchain would be through an official dApp or wallet.

Calling a smart contract incurs a network or miner fee, so you need to have the native token of the network you are issuing an NFT on. In other words, unless the fee is covered by the platform, you need ETH to mint NFTs on the Ethereum blockchain. You can buy ETH and other popular digital assets on cryptocurrency exchanges or go an even easier way and use ChangeHero!

How to start an NFT project? Now, this is a bit more tricky but still doable, especially if you opt for an existing NFT protocol instead of making one from scratch. After that, it is up to setting up a smart contract that will determine the properties of your NFTs but don’t forget about the other components to success. Without the demand from users, it is going to be tough to get any traction, meaning learn how to promote your NFT projects beforehand.

Where to Buy and Sell NFTs?

How do I buy an NFT? Another option to get one for yourself is to hunt for gems that other people have already created on an NFT marketplace.

As mentioned, NFTs can only be traded on special marketplaces, as they are not directly interchangeable. The most popular platforms to trade NFT projects are OpenSea, Rarible, Magic Eden, and Nifty. Some NFT projects and collections have their own dedicated marketplaces, such as CryptoPunks and NBA Topshot.

How to buy the NFT crypto? First, create a cryptocurrency wallet on an appropriate blockchain (like Ethereum). Then, go to an NFT marketplace (for example, OpenSea) and browse to your heart’s content. Finally, buy the NFT you want and receive it in your wallet! Regardless of where you trade or get them and how much your NFTs are worth, it is never a bad idea to know the basic tips of NFT management. Secure your crypto wallet, avoid phishing links and drainers, be careful about what information you disclose and where.

How Are NFTs Doing?

Anyone who has been watching the crypto space is aware of this phenomenon, even if through sheer exposure. However, it has been an almost full cycle since the NFT explosion, so many newcomers were not around to see it for themselves. How are NFTs doing in the big 2025?

As we’ve mentioned, it has not died. Quite the opposite, this space has carved a niche for itself and is seeing million-dollar daily trading volumes at the time of writing. Ethereum is still dominating, with its Layer-2s running up: Base, Polygon and Arbitrum One all account for hundred-thousand dollar NFT volumes. As for the marketplaces, OpenSea remains the leader due to wide cross-chain coverage but Blur and Magic Eden are also popular enough to see millions of worth pass through.

Conclusion

The NFTs’ merits and prospects cover anything from digital identity to a work of art that can be put on the blockchain, guaranteeing uniqueness and verifiability. This versatility of tangible use cases in the digital art world, music industry, and even physical assets is the reason NFTs gained popularity.

How did you like our NFT 101? Learn more from our Beginner’s Guides in the ChangeHero blog. Stay tuned for the tutorial to NFT investing for beginners! If you want to get the updates to it first, follow ChangeHero on social media: X, Facebook, and Telegram.

Frequently Asked Questions

What are NFTs and how do they work?

What is an NFT in crypto? How does an NFT work? NFT stands for “non-fungible token” which is a kind of blockchain asset that is irreplaceable by its analogs. Each NFT associated with a single contract is unique.

How to create an NFT?

How do I launch my NFT? NFTs can be minted like regular crypto tokens, with the help of special services or wallets, even without technical expertise. Such services include MetaMask, Mintable, and Receiptchain.

How is NFT used in real life?

NFTs are finding use in art distribution, certificates of authenticity, digital copyright certificates, and most commonly, collectibles. These tokens can serve as proof of ownership because due to how the NFT technology works each token is verifiably unique.

What is the main purpose of NFT?

Why would anyone buy an NFT? The popularity of NFT collections hints at it being primarily perceived as a speculative asset to be traded on NFT marketplaces. Another common use of NFTs is in Web3 games to represent in-game items and assets.

How does an NFT make money?

From the speculative investment angle, the price of an NFT is decided on an open marketplace. The contents of the token and the perceived value of the NFT collection are some of the factors that play a part in the NFT price formation.

What are some NFT examples?

Common NFT examples would be randomly generated CryptoPunks or NBA TopShot athlete and club collectibles. A less obvious but very illustrative example would be Unstoppable Domains, which is a human-readable Ethereum address service.

What is the best NFT to buy for beginners?

Before investing, we advise beginners to learn about some NFT projects, collections, their underlying blockchains, and the mechanics of the transaction. You can read about it all in the ChangeHero blog and dedicated websites with analytics and guides.

How do I buy NFT tokens?

How do u buy NFT? The quickest way to go about it is to browse a popular NFT marketplace like OpenSea and buy them with an appropriate wallet address and cryptocurrency. Ideally, though, you might want to learn more about popular NFT collections, compare floor prices, and work out the mechanics of the purchase beforehand.

Disclaimer

This article is not a piece of financial or investment advice. When dealing with cryptocurrencies, remember that they are extremely volatile and thus, a high-risk investment. Always make sure to stay informed and be aware of those risks. Consider investing in cryptocurrencies only after careful consideration and analysis of your own research and at your own risk.