Guide to NFTs: What They Are, How They Work, and What to Know Today


Guide to NFTs: What They Are, How They Work, and What to Know Today

Key Points

  • An NFT or non-fungible token, is a digital asset which can neither be duplicated nor transferred, which has been registered on a blockchain.
  • Kevin McCoy and Anil Dash created the very first NFT in May 2014. 
  • Over 90% of them are created on Ethereum’s blockchain.

NFTs have been the “hot” thing in crypto for some time now, despite many people not even knowing what they are. Even more, the acronym “non-fungible token” doesn’t clear things up at all. It probably muddies the water even further. Today, we are going to take a look at NFTs and learn all we can about them, the technology under them, and what people are currently using them for. Let’s get into our Guide to NFTs: What They Are, How They Work, and What to Know Today.

NFTs Explained: Everything You Need to Know


The first and largest NFT marketplace, OpenSea, is invested in building the most accessible marketplace for buyers, sellers, and creators alike.

©Rokas Tenys/Shutterstock.com

NFTs is a term that is used to describe a type of digital asset that is secured through something known as a blockchain. Recently, NFTs have gained a lot of popularity, and high-profile celebrities have announced collaborations and releases, further skyrocketing a formerly niche technology into the spotlight. Despite their popularity, many people don’t know what it is. Thankfully, they aren’t all that hard to comprehend.

NFT technology allows people to own the rights to something in the digital world. In the same way that you can own a painting in real life, NFT technology allows an individual to claim rights to things in a digital space. With how common piracy is online, NFTs bring ownership to a previously impossible to regulate space. Since Its inception, the digital rights to memes, tweets, and more have all been auctioned off and sold to people around the world.

Using NFT technology, online users can claim ownership, track and monitor usage, and collect profits on digital assets such as metaverse real estate, artwork, and digital collector’s items. As a result, marketplaces have been created to list, buy, and sell these NFTs. Additionally, many celebrity icons have promoted certain projects, causing the price to own the NFTs to skyrocket, occasionally into the millions.

What is an NFT?: Complete Explanation

NFTs are essentially digital “tags” that exist on distributed ledgers known as blockchains. A blockchain is a running list of transactions that exists on thousands of computers around the world, all instantly updating the list together. Since so many computers are keeping tabs on this running list, forgery is near impossible, and ownership, as recorded on the list, can be perfectly tracked. Additionally, transactions on this digital ledger can be followed since the ledger is accessible to the public.

NFTs exist on blockchains around the world, depending on the platform that the tags were built for. Ethereum is one of the most common blockchains that NFTs are created and listed on, with over 90% of digital assets being created using ERC-721 tokens (Ethereums name for NFTs created on their blockchain.)

When a user creates a piece of digital art, music, or other assets, they register the asset on the blockchain of their choice, creating a unique token that is owned by them. From then on, their token isn’t able to be replaced by anything else, even if someone were to copy it. When someone is replaceable, it’s referred to as “fungible”, and when something isn’t replaceable, it’s referred to as “non-fungible”. NFTs are digital assets with a unique address on the blockchain (token address) that aren’t fungible (non-fungible.)

What do you call a non-transferable and non-copyable digital asset that can be traced on a blockchain? A non-fungible token. Let’s call it an NFT, for short.

NFT: An Exact Definition

Because of its uniqueness, an NFT cannot be replicated.

©iStock.com/Adrian Vidal

A non-fungible token is a traceable digital asset that is assigned a unique online address on a running, distributed ledger known as a blockchain. Ownership of this unique address can be transferred, creating markets where NFTs can be sold.

How Does an NFT work?

An NFT works by storing data on a blockchain (usually Ethereum) and assigning a token address to it. Then, the address is assigned to a particular wallet address (usually someone’s crypto wallet), where the person can then take full ownership of their freshly created NFT. The process of assigning a newly created asset a token address on a blockchain is known as “minting”, much like a coin getting its serial number.

The specifics of how they are stored on blockchains are based on code. Regardless, users rarely interact with the code behind an NFT and simply understand that the wallet they have access to has been assigned a particular token.

Once you have possession of the rights of an NFT, you are then able to transfer those rights to someone else, much like you would transfer Bitcoin or Ethereum to someone. The ability to transfer the rights of ownership to particular NFTs has created large marketplaces where people list, buy, and sell NFTs at prices determined by however many people are willing to pay for them.

How Do You Create an NFT?

The process of creating an NFT varies with the blockchain that you are using. Still, it’s going to be relatively similar all the way around.

On the largest NFT marketplace around, OpenSea, the process is extremely simple. Create a profile, click “create” on the profile menu, add the file you are trying to assign a non-fungible tag to (usually a photo, audio file, or the metadata of some digital asset), fill in some queries, and click create! On OpenSea, you even get to choose various blockchains to mint your NFT on. Currently, Ethereum, Polygon, Klatyn, and Solana blockchains are supported on the OpenSea platform.

Other notable NFT marketplaces exist on other blockchains. Notable mentions include Axie (created for video game items and shopping), Tofu, and Mintable.

Where did NFTs Originate From?

The first-ever NFT was created by Kevin McCoy and Anil Dash in May 2014. The NFT was a very short video clip that was created by Jennifer McCoy, Kevin’s wife. McCoy and Dash created the NFT as part of a live presentation during a conference, Seven on Seven, that was happening in New York City. During the presentation, McCoy registered the video clip on the Namecoin blockchain and sold it to Dash for $4. Although it wasn’t referred to as an NFT at the time, many point to it as the first real transaction of a digital asset. A

t the time, McCoy and Dash were calling it “monetized graphics”, although that name isn’t around today. The term NFT wasn’t adopted until the widespread adoption of the technology across the Ethereum blockchain in 2017 when the term was used on the Ethereum GitHub.

The first-ever NFT project was launched in October 2015 and was known as Etheria. Etheria was demonstrated at the first-ever Ethereum developers conference and included 457 hexagonal tiles that were open for sale.

What Are the Applications of NFTs?

Today, the application of NFTs is hotly debated, especially as they have become more widespread and a part of public awareness. This is partially because blockchains don’t carry any real law behind them in any part of the world. What this means is that digital “ownership” that can be traced to a blockchain doesn’t carry any real weight behind it in a legal, or even personal, setting.

Additionally, just because someone owns the rights to a file doesn’t mean the file can’t be downloaded, copied, and distributed by anyone who wants it. Although someone could claim they own the digital rights to something, does it even matter on a decentralized and unregulated network?

Video Games and Collectibles

Still, some practical applications could be viewed as realistic for users. One of the most common applications of NFT technology is video game development. In video games, certain unlockable items can be assigned as an NFT in a digital world, giving that player exclusive rights to that digital asset. Although it doesn’t “mean” anything, other players could potentially pay for those rights if they wanted that item for themselves. In the regulated and enforced system that is the video game, the ownership associated with the item could be worth something.

Digital Art

Another application for NFTs is in the world of art. If an artist were to mint their digital artwork online, they could then sell ownership of that original piece to anyone. Could someone *right-click-save* the art later, even if they didn’t own it? Sure, but it could be traced that they don’t own the original. In the same way that anyone can go buy an identical print of a Picasso piece, owning the original is what’s truly valuable.

Future Possibilities

As technology advances, other potential opportunities could become available. A musical artist could release pieces of ownership to an upcoming album to raise money for a studio session. Holders of those NFTs could then receive future payments associated with their NFT if the artist makes it big since they supported the artist when they were small.

Additionally, NFTs will create a market of scarcity a the metaverse continues to expand. In a digital world, being able to show that your digital shoes are real Gucci and not copy-paste Gucci may just be the biggest flex!

Is it likely that certain NFT projects are overhyped, overpriced, and have no real enforcement or value proposition? Absolutely. Still, there is a lot of growing room for NFT technology, especially when it comes to the potential of owning digital assets in an increasingly digital world.

Examples of NFTs in the Real World

There are thousands of NFT projects that are constantly popping up each day. Most of them are looking to cash in on the hype surrounding NFTs, while others are true developers looking to create value in their respective digital worlds. Here are some of the biggest examples of NFTs in the world:


It’s hard to talk about NFTs without talking about CryptoPunks. CryptoPunks are some of the trendiest and highest-selling NFTs in the world, with many going for as much as $20 million-plus. The project was launched in June 2017 and quickly became one of the hottest in the world. These NFTs are small, pixelated images that are randomly generated with a specific set of traits. Certain traits are deemed more valuable than others, and since there are no others like them, they can be traded much like trading cards.

Bored Ape Yacht Club

NFT bored ape
Each of the 10,000 Bored Apes is unique and sold as NFTs.

The Bored Ape Yacht Club (or BAYC, for short) is a collection of digital art pieces. Like CryptoPunks, Bored Apes are randomly generated with certain traits, making certain ones more scarce than others. What makes the BAYC different than other projects is that they act as a membership card, allowing access to the BAYC membership rooms, online spaces, and more. The most expensive Bored Apes can cost as much as $40 million.

Axie Infinity

Axie Infinity is the first video game NFT project on this list. While playing the game, players earn certain NFTs through completing tasks and breeding their “Axies” to create new, unique ones. These styles are known as Play-to-Earn and are becoming increasingly popular. Axie Infinity has an all-time trading volume of over $4 billion.

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Frequently Asked Questions

What is an NFT?

An NFT (non-fungible token) is a unique ownership tag assigned to digital assets that can be transferred to other users.

Why are NFTs so expensive?

Certain NFT projects are so expensive due to their scarcity and the number of people who want to purchase them.

How do you make an NFT?

You can make an NFT on any large NFT marketplace (such as OpenSea). Most of the time, a “Create” tab is available for anyone with an account.

How do you read NFTs?

NFT is read by saying the letters individually (in-eff-tee). It stands for non-fungible token.

How do NFTs work?

NFTs work through blockchain technology. A unique tag (token) is created on a particular blockchain and then assigned to a particular digital asset. That token (and asset) can then be tracked, traded, and verified.

How do I invest in NFTs?

You can invest in NFTs by finding a project you particularly enjoy and purchasing an available NFT. Additionally, you could invest in the marketplaces that sell NFTs, such as OpenSea.

What are the top-selling NFTs so far?

The top selling NFTs by all-time trading volume (on OpenSea) are  CryptoPunks (909,555.83 ETH), Bored Ape Yacht Club (579,426.89 ETH), and Mutant Ape Yacht Club (403,743.34 ETH).

What is the Bored Ape Yacht Club?

The Bored Ape Yacht Club is an NFT project that sells digital photos of apes with unique and randomly assigned traits. These NFTs can then be used as a membership card, allowing access to the Bored Ape Yacht Club.

What was the first NFT sold?

The first NFT ever sold was Quantum (2014), which sold for $4 during a demonstration of the technology at a conference in New York.

Who created the concept of NFTs?

The concept of NFTs evolved from the Colored Coins Bitcoin concept in 2012, with the first recognized NFT being sold in May of 2014. The term “NFT” was first used after the Ethereum GitHub began to standardize the terminology in 2017.


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