What Is NFT: Definition, Examples, and Ways to Earn in This Field

This material is published for informational purposes only and does not constitute investment advice.

NFT (non-fungible token) is a special type of digital token that is unique and non-interchangeable. Each NFT is tied to a specific digital object (image, video, music, 3D model, etc.) and cannot be replaced by another identical token. Unlike fungible cryptocurrencies such as Bitcoin or Ethereum, an NFT has no equivalent — every token is unique.

After buying an NFT, the buyer receives rights to the token itself (a digital certificate). All other rights (commercial use, copying, modifying the underlying file) are governed by a separate license or the smart contract's terms — this is important to understand before treating an NFT purchase as buying copyright to the object itself.

What owning the token actually gives you:

• Right to use the object. The owner is typically permitted to display, reproduce, or use the associated digital object within the terms of a user agreement or license.
• Copyright (if provided). The token itself doesn't automatically transfer all rights to the content, but it can carry specific permissions for use or distribution.
• Resale or transfer of the token. The owner can list the NFT for sale or transfer it to someone else.

An NFT functions as a decentralized ledger entry (on the blockchain) recording ownership of a unique digital asset. Anyone can verify this information in the public ledger.

Contents:

• How NFTs Are Connected to Blockchain
• How NFTs Work
• How NFTs Are Created and Bought
• NFTs and Digital Assets
• NFT Market and Platforms
• Rights and Ownership
• Risks to Consider Before Buying
• FAQ

How NFTs Are Connected to Blockchain

NFTs are closely tied to blockchain technology — a distributed ledger that records all transactions. Each NFT is a cryptographic asset stored on the blockchain. Its smart contract (for example, under the ERC-721 or ERC-1155 standard on Ethereum) contains the token's unique identifier and the owner's address.

When a new token is minted, a transaction is added to the blockchain recording the issuance of the NFT. Data about the token (identifier, metadata, wallet address) becomes part of the public chain and cannot be altered retroactively — this guarantees the token can't be forged or duplicated.

Any transfer of an NFT is recorded as a transaction: the buyer sends cryptocurrency to the smart contract's address, and the contract moves the token to their wallet. This ensures transparency — every transaction is verifiable on-chain.

How NFTs Work

An NFT is created via a smart contract — a program on the blockchain that defines the token's logic. The ERC-721 standard requires a separate contract for each token type, while the more advanced ERC-1155 standard lets a single contract manage multiple NFTs.

When creating an NFT, the developer chooses a platform, connects a crypto wallet, uploads a file, and sets the token's parameters (name, description, attributes, royalty percentage, etc.). Once minted, the smart contract registers a new unique token linked to the creator's wallet address. The token itself lives on the blockchain, while the associated file may be stored on decentralized storage (IPFS/Arweave) or an external server — a technical detail that affects how durable the link between the token and the actual content is over time.

After minting, NFTs can be listed on a marketplace at a fixed price or via auction. A buyer pays with cryptocurrency, and the smart contract automatically transfers the token to the new owner.

How NFTs Are Created and Bought

The general process looks like this:

1. Choose a platform (marketplace). Dozens of platforms exist with different fee models. Many support "lazy minting" — uploading a file and metadata without paying a fee immediately, with the cost deducted only at first sale. On networks like Ethereum, minting fees vary with network load and can run into the tens of dollars in fiat terms; on cheaper networks (Layer 2s, various alternative blockchains), it's often under a dollar or free until the token sells.
2. Prepare the digital object. An NFT can represent nearly any unique file — graphics, video, audio, a 3D model, a game item. Make sure you actually hold the rights to the content before tokenizing it.
3. Connect a wallet. You'll need a crypto wallet — hot (software, always connected) or cold (hardware, offline). Hot wallets are convenient for frequent transactions but less secure; cold wallets are considered more reliable for storing valuable assets but less convenient for frequent trading. Store your seed phrase somewhere secure offline — losing it means losing access to your tokens permanently.
4. Set parameters and mint. After connecting your wallet, upload the file, fill in attributes (name, description, number of copies, royalty percentage), choose a network, and confirm the minting transaction.
5. Buy an existing NFT. Log in to the platform, connect your wallet, find the token you want, and confirm the purchase in whichever cryptocurrency the marketplace supports. Always check the transaction (gas) fee and the platform's terms before confirming. For a first purchase, starting on a lower-fee network can help minimize the cost of any mistakes.

NFTs and Digital Assets

Common use cases include:

• Digital art and collectibles — artists and musicians release NFT works, game designers release in-game items (weapons, skins, cards).
• Virtual property in metaverses — land, buildings, and avatar items in projects like Decentraland or The Sandbox.
• Game economies — some games let players earn rewards through owning and trading NFT items, though how sustainable these economic models are varies significantly by project and isn't guaranteed to produce stable income.
• Loyalty programs and "phygital" projects — brands issue NFTs as purchase bonuses or link a physical product to a digital authenticity token.
• Identification and certification — tokenizing diplomas, licenses, and digital credentials.

NFT Market and Platforms

The NFT market has gone through several distinct phases. In 2021–2022, it saw explosive growth, with total trading volume reaching tens of billions of dollars annually. In 2023–2024, a sharp decline followed, with volumes dropping significantly from peak levels.

By 2026, the market had stabilized, but at a substantially lower and structurally different level — estimates for annual trading volume converge in the range of a few billion dollars, well below the 2021 peak. Activity has shifted toward practical use: gaming NFTs account for a meaningful share of volume, and the number of projects tied to brand loyalty programs and "phygital" tokenization of physical goods continues to grow. Some of the market's "blue-chip" collections from 2021 have partially recovered value, but overall market engagement remains well below the hype period, and the vast majority of individual NFTs trade at very low volumes or don't trade at all.

Major marketplaces function as electronic auctions: creators list tokens, buyers bid at a fixed price or in an auction, and the platform takes a commission on each sale (typically a few percent).

Rights and Ownership

It's important to understand: buying an NFT doesn't automatically grant all rights to the associated content. The token confirms ownership of the digital marker itself, while specific usage rights (display, copying, commercial exploitation) are governed by a separate agreement or the smart contract's terms. If the tokenized object is copyrighted, rights to the underlying content remain with the original creator by default, unless explicitly agreed otherwise.

So what an NFT buyer actually gets:

• A certificate of uniqueness — registered status as the token's owner on the blockchain
• The right to manage the token — store it, transfer it, or resell it
• A license or agreement (if included) — only if explicitly specified by the platform or creator's terms

Risks to Consider Before Buying

• Volatility and low liquidity. Most NFTs' value can swing sharply, and selling a specific token at a desired price isn't always possible — especially for projects outside the actively traded set.
• Fraud. Phishing sites, fake listings, and impersonated creator accounts are a common problem in the NFT space.
• No automatic content rights. Buying an NFT doesn't give you the right to copy or commercially use the underlying file without a separate license.
• Technical costs. Minting and transfer fees (gas) can vary significantly between networks.
• Durability of the content link. If the underlying file is stored on an external server rather than decentralized storage, its availability depends on that server staying online — something that isn't always obvious at the point of purchase.

FAQ

What does "non-fungible" mean?

It means the object is unique and can't be replaced by an identical one. For example, ordinary currency units are fungible (each is equal to another), but each NFT has its own unique identifier.

Does buying an NFT give me rights to the digital file itself?

Not automatically. The token confirms ownership of the digital marker; rights to use the content itself (copying, commercial use) are governed by a separate license or the smart contract's terms.

Can an NFT be faked?

The token record on-chain is essentially impossible to forge — its authenticity and ownership history are recorded on the blockchain. But the underlying digital file (an image, for instance) can be copied; a copy doesn't grant ownership of the original token. Watch out for fake listings and phishing sites imitating real platforms.

How much does it cost to create an NFT?

Depends on the network and platform. Some blockchains let you mint without paying a fee upfront, deducting the cost only at first sale. On busier networks, transaction fees can range from a few to several hundred dollars in fiat terms.

What state is the NFT market in right now?

Significantly below the 2021–2022 peaks in trading volume, but not gone: activity has concentrated around gaming NFTs, loyalty programs, and tokenization of physical goods, with liquidity concentrated in a relatively small set of the more established projects.