Background
Non-fungible tokens, or NFTs, are unique digital assets stored on a blockchain that represent ownership of images, GIFs, songs, videos, virtual plots of land, and more.
Unlike “fungible” assets that can be exchanged for an identical asset, including the US dollar and bitcoin, NFTs are not interchangeable, making them more similar to fine art than currency. Each NFT is unique and verifiable on the blockchain.
NFTs helped bring a huge wave of attention and investment to the crypto space, despite hype for the digital assets fading over time.
Boom and Bust
The first NFTs were created in 2014, but NFT sales were minuscule until 2021. That autumn, NFT trading volumes spiked 700% to $10.7B when compared to the previous quarter, as the digital assets’ popularity rose in tandem with investors’ appetite for risk.
Popular NFTs from projects like Bored Ape Yacht Club and CryptoPunks sold for millions of dollars each during their peak popularity. The major art auction house Christie’s sold an NFT by artist Beeple for $69M in early 2021; later that same year, an art piece called “The Merge” by Pak became the most expensive NFT ever sold, at $92M. (See the top 10 most expensive NFTs.)
2022 was the best year in history for NFTs, in terms of trading volumes, which hit $57.2B as brands including Prada and Starbucks launched their own NFTs.
However, interest waned in 2023 as investors became more cautious and questioned whether NFT investment was a bubble ready to burst. Trading volumes plummeted to about $16.8B and have since continued to drop. 2024 was NFTs’ worst year since 2020 as investments returned to pre-boom levels.
How They Work
NFTs are stored on blockchains, most often Ethereum (1440 Topics), where anyone can view a record of an NFT and see any time it’s bought or sold. These records are automatically generated using smart contracts that operate using “if this, then that” programming logic.
Anyone with a cryptocurrency wallet can create or “mint” an NFT on the blockchain either through an NFT marketplace like OpenSea, or directly by building a smart contract. (Learn how to mint an NFT.)
NFTs are traded on online marketplaces, where they’re bought and sold using cryptocurrency. OpenSea is the largest NFT marketplace, but rival crypto companies, including Binance and Coinbase, also operate NFT platforms.
Ideally, this system ensures NFTs are unique and easily trackable across the blockchain. However, critics have questioned NFTs’ legitimacy.
Mixed Opinions
As NFT scams have become increasingly common, the space’s credibility has been questioned. While NFTs are meant to be verifiably unique, scammers have created counterfeit NFTs that appear to copy tokens and trick buyers.
The NFT space has also seen crypto scams known as rug pulls, in which the creators of a crypto project take buyers’ money and vanish. For instance, more than 8,000 “Frosties” NFTs sold out with the promise that they’d become assets in a blockchain-based video game and offer other exclusive benefits. But after the Frosties NFTs sold for more than $1M in total, the developers disappeared and shut down all related Frosties assets.
Proponents don’t think these incidents overshadow the space’s potential, given that NFTs can benefit artists and other creators by generating new income sources through the assets’ initial sale and, potentially, ongoing royalties when they’re resold.
While NFTs are mostly known for representing images, use cases could one day include storing assets like real estate, credit scores, and concert tickets on the blockchain.
