What is an NFT?

NFTs in plain words

Ordinary cryptocurrency is fungible, meaning its units are interchangeable. Your bitcoin is no different from anyone else's, like two identical banknotes, and it does not matter which one you get back. An NFT works differently, and its name says so: NFT stands for non-fungible token NFT (non-fungible token).

Theater tickets make the difference easy to see. Two tickets to the same show look alike, yet one has seat 7 in row five printed on it and the other seat 8, which makes them different tickets. An NFT is like such a ticket with a seat number, except that it is recorded in a blockchain.

NFTs are tracked by a program on the blockchain called a smart contract. Each NFT carries a number of its own, and the program remembers who holds which. The article what is a token explains how a token differs from a network coin. Many NFTs have been issued on the Ethereum network, though NFTs exist on other networks too.

What you get when you buy an NFT

What buying an NFT gives you:

• a token recorded to your address, which only the holder of that address's key can manage (the key is the secret code your wallet uses to approve transfers);
• the ability to sell or give away the token by transferring it to another address;
• rights to the image, but only those the project's license grants separately.

What buying an NFT does not give you by itself:

• the only copy of the image, since anyone can save the file;
• the copyright to the image¹ ⚖️;
• a guarantee that the file will always open;
• a guarantee of price or income.

Owners of CryptoPunks, for example, received a commercial license for their punks' images separately, five years after the collection launched². So before you use an NFT's image for business, read the project's terms of use.

Where an NFT's image is actually stored

An NFT itself usually holds only a link to its description, and the description in turn gives the address of the image³.

It works like a ticket from a left-luggage office. The ticket is yours and shows that the item is checked in under your name, yet the office holds the item itself. If the office closes or swaps the item, your ticket stays exactly the same.

In some NFTs the link can be changed even after you buy³. In October 2021 the founder of the Signal messenger issued an NFT whose image turned into an emoji once it sat in the owner's wallet⁴.

The image file can live in one of three places: on the project's server, in a storage network where many computers hold the file at once, or right in the blockchain. In the IPFS storage network a file stays available as long as at least one computer in the network keeps it⁵, while the Arweave network is designed for permanent archival storage⁶.

The NFT's page on a marketplace usually says where the image is stored. If it does not, ask the project. CryptoPunks images, for example, have been written right into the Ethereum blockchain since 2021⁷.

What happens to an NFT if the website with the image shuts down?

The NFT itself does not disappear when a website closes, because the record that the token is yours is kept in the blockchain. The image may stop opening if the file was stored only on that website's server. When the Nifty Gateway platform was shutting down in 2026, it promised to move most of the files to the Arweave network and gave owners 90 days to withdraw their NFTs to their own wallets⁸. If the platform holding your NFTs announces it is closing, move them to your own wallet before the deadline and keep copies of the files yourself. Do not pay "recovery services" that promise to bring back the image or the token; the article phishing and scams describes this kind of fraud.

NFT risks and how not to buy a fake

• Fakes and copies appear because anyone can copy an image and issue their own "collection" under the same name. In January 2022 the OpenSea platform reported that more than 80% of the NFTs created with its free tool were plagiarism, fakes or spam⁹. The only thing that sets the real collection apart is the address of its smart contract, the program's number on the network.
• The price of an NFT can drop almost to zero, and a unique item is usually harder to sell quickly than ordinary cryptocurrency.
• Lose the key and the seed phrase (the set of words from which a wallet restores your keys), and you lose the NFT too (what is a private key).
• A link to a "free NFT" or a "giveaway" in direct messages can lead to a site that asks you to sign a permission in your wallet and then drains everything from it. The article staying safe when connecting a wallet explains what to check before signing.

What NFTs are used for

NFTs got a bad reputation from images people paid large sums for, and some NFT platforms have already closed. The format itself is still used wherever someone needs to show openly who owns something unique. For collections, value is a matter of agreement, as with stamps, and rests on history, rarity and demand. For practical NFTs, the value lies in what they do. A name like alice.eth in the ENS system, for example, is also an NFT, and it points to your wallet's address¹⁰.

Types of NFTs by purpose

More detail on the ERC-721 standard and the image link

The Ethereum network has a common standard for NFTs, ERC-721, under which each token has its own number and its own properties³. On the XRP Ledger network, NFTs are built right into the network itself¹¹.

The exact address of the image is written in the token's description.

A link of the form ipfs://… leads to the IPFS network, and an ordinary https://… address leads to a server.

Frequently asked questions