nft

What is NFT (Non-Fungible Tokens)? All You Need to Know in 2025

NFT (Non-Fungible Tokens) have recently surged in popularity, captivating the attention of both the digital and traditional worlds. In essence, NFTs are unique digital assets stored on blockchain technology, representing ownership or proof of authenticity of a particular item or piece of content. From digital artwork to virtual real estate, NFTs have revolutionized the concept of ownership in the digital age. This essay explores the phenomenon of NFTs, delving into their origins, applications, and implications for various industries and the broader society.

What are NFTs?

NFTs (Non-Fungible Tokens) are digital proofs of ownership of intangible goods. These assets are typically unique, non-substitutable digital assets (tokens). Blockchain technology allows ownership of these tokens to be proven and transferred.

Examples are digital works of art, computer game objects, digital tickets, or domain names. However, it can also be digital proof of ownership of physical objects such as paintings or other items.

The opposite of NFTs is fungible assets (fungible tokens). This interchangeability means such a token can be replaced with an identical one at any time. Cryptocurrencies are exchangeable digital blockchain-based assets.

1 Bitcoin is always 1 Bitcoin, no matter when it was created and in which block it is currently located. A bitcoin can always be exchanged for another bitcoin without restrictions.

In the real world, €10 is always €10, whether in a bank account, a Paypal account, or a wallet as a crumpled bill. The interchangeability is there per se. You can also exchange a 10 euro note for two 5 euro notes or five 2 euro coins.

However, interchangeability can also be relative and subjective. A coin can one day become a rare and valuable collector’s item due to its special properties.

A business class flight ticket is not interchangeable with an economy class ticket. And within Economy Class, a window seat differs from an aisle seat.

These small differences pose new challenges for NFTs on a blockchain. There can certainly be several identical NFTs, yet they are rare and relatively unique if only 10 exist worldwide.

What is the difference between non-fungible and fungible?

To understand what a “Non-Fungible Token” is and what makes NFTs so special, it is important to know the difference between “fungible” and “non-fungible.” If something is fungible, then it is interchangeable. Good everyday examples are cash and securities. A ten euro note always works identically and is worth the same as any other ten euro note. If you buy a share of Apple, you get the same share of the company as any other shareholder.

Non-fungible things are not easily interchangeable – even if they may look the same at first glance. Classic examples are works of art. Replacing the Mona Lisa in the Louvre in Paris with another painting by Leonardo da Vinci quickly caused a stir. Another example of everyday life is cinema tickets. A cinema issues hundreds of tickets daily, which all look the same at first glance. However, the tickets are valid for very different films, starting times, and seats – so they cannot be easily exchanged and are therefore not fungible.

Blockchain Technology and NFTs

Before there were blockchains, numerous non-interchangeable digital objects already existed. Whether individual elements in computer games, digital tickets, domain names, or entries in social networks, the computer world was practically full of NFTs.

However, ownership could not be proven, and there was no possibility of officially transferring ownership of these objects to someone else. There was simply no compatibility and no standardized way to trade these digital things with sufficient liquidity.

This is exactly where blockchain technology comes in. The entries and transactions in a blockchain are immutable, making ownership of an NFT secure and verifiable. The origin and complete ownership history are forever stored in the blockchain.

NFTs on a blockchain thus enable unique ownership of copyable files. Fast and inexpensive shipping allows for safe exchange and trade.

What makes NFTs so valuable?

What is driving the demand for NFTs? It’s not just digital scarcity or uniqueness. Rather, it is the individual benefit and emotions derived from the origin of the NFT.

The benefit is most obvious. When an NFT ticket grants access to a significant event, there is a clear reason to purchase that NFT. The same applies to computer game objects that give the game characters special abilities.

But why should you buy an NFT artwork for a lot of money? That is certainly the question many are asking. And some doubt whether art can even be digital. But then it would be just as questionable why people buy expensive paintings or expensive collector’s stamps.

Emotions trigger the origin of the collector’s item, and the story behind it creates real value.

An autograph card is also just a piece of paper with some ink. But if the signature comes from a very prominent person and the reason for the signature is very special, then the value increases accordingly.

In the age of digitization, works of art and celebrity signatures can now also be dematerialized and displayed on the Internet.

Our guide explains how to buy an NFT and covers everything you need to know about it.

The most well-known NFTs

Although NFTs can already look back on a few years of history, two NFTs, in particular, aroused widespread media interest in 2021.

Twitter founder Jack Dorsey’s first tweet as NFT

Twitter founder Jack Dorsey NFTed his first tweet from 2006 for approximately $2.9 million.

There could be numerous objections: The tweet is in Jack Dorsey’s Twitter account and, therefore, still in his possession! What happens if Jack Dorsey deletes the tweet? But that’s not what it’s all about; it’s all about the story behind it and the triggered emotions.

When the founder of the Twitter platform sells his first tweet as a digital file, there is a unique story behind it. Thanks to blockchain, the new owner of the tweet can forever prove ownership of that NFT.

He can prove that the bid came from Jack Dorsey personally and that he was awarded the highest bid. Who can say that about himself? Probably just as few can claim ownership of Henry Ford’s first car.

Jack Dorsey’s tweet was sold by Cent platform at an auction on the Valuables. Tron’s Justin Sun was also one of the bidders, but someone else won the bid.

Artist Beeple and his $69 million NFT

The biggest NFT media attention to date has come from artist Beeple, whose digital artwork fetched $69 million at a Christie’s auction on March 11, 2021.

The American Mike Winkelmann is behind the stage name Beeple. The NFT artwork is titled “Every day: THE FIRST 5000 DAYS” and is a digital collage of 5000 individual artworks created in as many days.

Therefore, the total work of art takes more than 10 years to create; the actual effort is to create a 319-megabyte JPEG file with a resolution of 21,069 x 21,069 pixels.

But the whole story behind it is unique: it is the most expensive NFT work by a modern artist to date, the first NFT auction of its kind at Christie’s, and thus a worldwide breakthrough in the art market. Will this work of art continue to increase in value in the future? Probably yes.

Anyone who has previously been unable to understand why people spend so much money on stamps or works of art will probably also find it difficult to understand the trade in NFTs. However, digital NFT artworks may also hang on the wall.

Those who are self-reliant like to show their NFT collection on their social media profile with the help of social media management tools. With an NFT, you quickly become a fan of a certain artist or sports club. NFTs allow you to show off and impress in contemporary digital form.

Origin and development

NFTs have become significantly more present in the media in recent months. Headlines like Jack Dorsey’s $2.9 million NFT tweet or the $69 million sale of the Beeple NFT bring NFTs to a much wider audience.

This often gives the impression that NFTs are a completely new phenomenon. However, the history of blockchain-based NFTs can already be traced back several years. The first NFT experiments were already running in 2012 with colored coins on the Bitcoin blockchain.

NFT Premiere on Ethereum: CryptoPunks

NFTs took off only with the Ethereum blockchain. The first Ethereum NFTs appeared as CryptoPunks in the summer of 2017.

Crypto Punks are 10,000 unique digital characters brought to life by Larvalabs. Your digital proof of ownership is stored on the Ethereum blockchain as unique tokens. Individual optical properties characterize each CryptoPunk, so no two are alike.

CryptoPunks inspired the digital art market and were the precursor to later standards. Due to the limited supply and cult status among early adopters, they are already considered digital antiques. They are still tradable and interoperable with most NFT applications on Ethereum.

2017: Birth of the CryptoKitties

Even though Crypto Punks were officially the first NFTs on the Ethereum Blockchain, most people still remember the CryptoKitties. In late 2017, they became the first mainstream application of NFTs.

2017 was already a year with much hype around cryptocurrencies, fueled by the ICO (ICO=Initial Coin Offering) bubble on the Ethereum platform.

In a short time, countless new ICO projects started, each offering new and supposedly scarce tokens. This triggered a veritable gold rush atmosphere. In another article, we will show you how to recognize such NFT drops.

More and more new cryptocurrencies on the Ethereum Blockchain saw the light of day in the digital world. With significantly increased transaction fees, it didn’t take long for network congestion to increase. However, one of the reasons for the high utilization was, among other things, creating and trading with CryptoKitties.

CryptoKitties are digital images of cartoon cats created by Dapper Labs for a blockchain computer game. Each cat is unique and only exists once on the blockchain.

The special thing about them is that new, unique CryptoKitties can be bred in the on-chain computer game by uniting different cats. These new cats could then be auctioned off or sold on the open market.

The CryptoKitties bubble

Breeding has attracted many speculators. The idea was simple: buy some rare CryptoKitties, use them for breeding some new, even rarer cats, sell them at high prices, and then start all over again. At its peak in 2017, the trading volume was around 5000 ETH, and sales of CryptoKitties achieved prices over $100,000.

It was almost absurd to pay such high prices for digital cats. But the incredible story behind them, combined with the big hype surrounding cryptocurrencies, quickly brought many new buyers to the market.

Ethereum’s network capacity could not cope with this onslaught at the time, so trading and breeding CryptoKitties incurred exorbitant fees and hours of waiting.

This mixture of hype, speculation, and the viral story finally resulted in a bubble that also attracted the attention of the press. But as expected, the bubble burst soon after.

In mid-December 2017, the demand for CryptoKitties suddenly dropped, and prices plummeted. Shortly after, the entire crypto bubble started to burst, and a multi-year bear market was heralded.

2018 – 2020: Developments during the ongoing bear market

After this hype, interest and media coverage of NFTs leveled off. But that didn’t mean that exciting NFT concepts weren’t developed afterward. On the contrary, CryptoKitties laid the foundation for new ideas.

From 2018 to 2020, many new courses were set for blockchain-based NFTs, without which a new onslaught would probably not have been possible in 2021. Numerous blockchain projects have used the crypto winter to launch interesting NFT applications.

NFTs as digital art

This is how the art market discovered NFTs for itself. The property of clear proof of ownership and the possibility of transparently displaying it is almost ideal for digital art. Some artists started experimenting with NFTs.

Platforms for trading in digital art, such as OpenSea, SuperRare, MakersPlace, or Known Origin, were founded and continuously expanded.

So-called minting platforms, such as Digital Art Chain, Mintbase, and Mintable, integrate solutions to make creating NFTs easy and fast for anyone without any programming knowledge.

If the entry hurdle is low, this also whets scammers’ appetite. In another article, we show you how to spot NFT scams early.

Gaming and virtual worlds

The gaming industry, which centers on blockchain-based virtual reality, also recognized NFTs’ great potential early on. Above all, the Decentraland and CryptoVoxels projects, which enable the purchase and ownership of virtual land in NFTs, should be mentioned here.

New digital ecosystems with virtual cities and landscapes are emerging in these virtual game worlds.

Enjin is another pioneer in blockchain-based virtual reality. This project allows gaming paraphernalia from NFTs to be easily transferred from one game to another.

Domain names

In addition to art and gaming, the domain name market adopted NFTs early on to provide domains similar to “.com” with decentralized blockchain technology. The best-known service provider, Ethereum Name Service, was founded in May 2017 and connected to the most common NFT marketplaces in 2019.

The number of registered “.eth” domains has grown steadily.

Another well-known service provider is Unstoppable Domains, which, among other things, has released the “.crypto” domain.

Between 2018 and 2020, many important foundations were laid for future NFT mass applications. NFTs have since penetrated numerous other sectors of the economy, including sports, film, music, leisure, finance, and collectibles. These new NFT ecosystems will be discussed later.

Soulbound tokens

The latest modification of an NFT is the so-called SBT. Here, with Vitalik Buterin, the Ethereum founder, work was done on a system introducing the new Soulbound tokens.

These SBTs cannot be traded and can be assigned to a user. Imagine receiving your school certificate or job reference sent digitally as an SBT. This gives you a digital certificate that is traceable in the blockchain and belongs only to you.

Using such SBTs, each user would receive a digital certificate of authenticity. As in paper form, a forgery would be more difficult to create here.

This development can still be very exciting, and we will keep you updated.

NFTs on the Ethereum blockchain

Ethereum is currently the largest smart contract blockchain. Even with NFTs, Ethereum has been ahead since 2017. Whether Crypto Punks or CryptoKitties, the first Jack Dorsey tweet, or the Beeple collage, they, and most marketplaces, are part of the vast NFT world on Ethereum.

Token Standards

All tokens on Ethereum, whether cryptocurrencies or NFTs, can be assigned to clear standards. Standards are an important building block for how tokens work. Sufficient standards can only guarantee essential properties such as ownership, access, and portability.

Standards are also essential for software development. This way, the basic functionalities and behavior are clear to all involved.

The three most common Ethereum token standards are ERC20 for fungible tokens (exchangeable tokens such as cryptocurrencies) and ERC721 and ERC1155 for non-fungible tokens (non-exchangeable tokens=NFTs).

The NFT project Azuki has established a modification of the ERC721 standard with ERC721A. New NFT projects often use this, which has the advantage of significantly lower network fees.

The ERC20 standard assigns amounts to addresses. The number of cryptocurrencies held can always be seen for each Ethereum address.

With the birth of the CryptoKitties, the important NFT standard ERC721 was created, on which most NFTs are still based today. ERC1155 is another NFT standard developed by Enjin.

ERC1155 is a hybrid of exchangeable and non-exchangeable tokens. ERC721 maps owners to unique IDs, while ERC1155 has a nested mapping from IDs to owners to sets.

Disadvantages of Ethereum for NFTs

Even though Ethereum is the largest NFT platform, it is not always the first choice for every type of NFT. Ethereum is still struggling with the challenge of increasing capacity limits. Therefore, extremely high fees are sometimes incurred for creating and trading NFTs.

For a valuable NFT like the Beeple artwork, $100 in fees might be insignificant. However, for many smaller artists who want to sell their work for $100 to $200, such high amounts are a clear obstacle.

Against this background, several alternative blockchains have come forward to close this market gap. Depending on the NFT use case, there is also a suitable NFT blockchain that promises faster and cheaper trading of NFTs. In the next section, we take a look at alternative NFT blockchains.

Alternative blockchains for NFTs

Even though Ethereum is still the top dog for NFTs and most NFT marketplaces are linked to Ethereum, there are numerous other blockchains on which NFTs can be generated and traded. Most of these are so-called proof-of-stake blockchains, which are much better suited for NFTs.

Better because they enable more transaction volume with lower costs. When creating an NFT (minting), a new entry is written to a blockchain. This can eat up a large chunk of transaction fees.

Ethereum is currently based on Proof-of-Work, which requires a lot of work. This high effort severely limits the capacities, which results in higher fees.

On the other hand, proof-of-stake blockchains require significantly less energy and allow faster transactions at lower costs, which is beneficial for generating NFTs and subsequent trading.

An alternative proof-of-stake blockchain that has made a name for itself when it comes to NFTs is Flow.

Flow

The same developers created the flow behind CryptoKitties. The flow blockchain is designed to prevent an overload like the one CryptoKitties experienced in 2017 on Ethereum. There is also a native token called FLOW that can be traded on numerous exchanges.

NBA Top Shot, a very popular NFT marketplace in the US where basketball fans can buy NBA highlights as NFTs, is powered by the Flow blockchain.

With NBA Top Shot, the most spectacular game scenes from an NBA basketball game are edited into videos. These video highlights will be available for sale on the NBA Top Shot website.

In principle, the video clips are similar to traditional physical trading cards, whose proof of ownership is now determined by a blockchain entry.

If basketball is not your preferred sport, we have compiled an article about the football manager Sorare for you.

NFT blockchain coins

Since 2020, many NFTs have experienced tremendous increases in value. One of the main reasons is that the cryptocurrency Ether (ETH), on which most NFTs are traded, has seen its price multiply.

If, in addition to in-depth market knowledge, you have a bit of luck or a sixth sense for which NFTs could be in high demand, you might be able to build a fortune with NFTs.

However, if this speculation is not for you, you can invest in selected NFT coins. This is roughly the same as investing in ETH because these NFT coins are required for fees on the respective blockchain on which NFTs are created and traded.

The more NFTs are in demand, the more fees are incurred, which drives demand for these coins and automatically affects the price.

Chiliz

CHZ is a utility token on the Ethereum blockchain that is used as the official cryptocurrency on the Socios.com platform. The main field of application is the sports and entertainment industry. Chiliz wants to revolutionize the connection between clubs and fans in the sports world. The goal is to offer millions of sports and e-sports fans cryptocurrency to buy direct voting rights as fan tokens for their favorite clubs. These fan tokens are NFTs and also fall under digital collectibles. Owners of these NFTs receive numerous exclusive benefits and individual recognition.

Chiliz has partnered with major football clubs such as FC Barcelona, ​​Juventus Turin, and AS Roma. The venture is expected to attract even more attention from the sports world in the future and further boost the NFT market.

NFT Ecosystem

In the meantime, a large cross-blockchain ecosystem has emerged around NFTs, which will probably continue to grow in the coming years. Behind it are many start-ups that have specialized in different areas. The ecosystem includes infrastructure, digital collectibles, domains, the gaming industry, virtual reality, and marketplaces.

Marketplaces

What the exchanges are for cryptocurrencies, the marketplaces are for NFTs. NFTs can be created there and then traded.

The best-known and largest marketplace is OpenSea, the “e-bay” among the NFT marketplaces. We tested OpenSea for you and found the platform suitable for beginners and advanced users. Other interesting marketplaces include Rarible, SuperRare, and Mintable. All four marketplaces mentioned are compatible with Ethereum.

However, the number of marketplaces for NFTs that are also compatible with other blockchains is constantly increasing. For example, Kalamint is a digital art marketplace linked to the Tezos blockchain.

How do you create an NFT?

Creating an NFT and offering it for sale is not difficult. However, having a few specific “tools” and some patience would be best.

Put, using the example of a digital work of art, you need a file that can be identified by copyright, a wallet, and sufficient cryptocurrency, e.g., ETH.

With the wallet, you can easily connect to an NFT marketplace, such as the Metamask wallet on the Opensea platform. When you log in with the wallet, you can upload the digital file in the prescribed format. The NFT is created and added to the blockchain as an entry. This so-called minting is not free but requires fees.

We have tested the best NFT wallets for you.

After the NFT is created, the digital artwork will be visible in the marketplace’s gallery and available for sale. The sales proceeds in cryptocurrency are then credited to the corresponding wallet address.

Technical limits

Although the first mainstream NFTs date back to 2017, the NFT phenomenon is still in its infancy. Many questions are open. In particular, the guarantees for authorship and ownership are not yet legally guaranteed. For example, multiple NFTs can be created on different blockchains for the same file.

Then, there would be several different NFTs of the same original, a meltdown in the art and collector world.

Furthermore, one must be aware that the original NFT file is not stored on the blockchain but only the proof of ownership for an NFT “minted” on a corresponding platform. Even if this blockchain entry should exist forever, one is still dependent on other applications, such as websites, and platforms, such as marketplaces or mobile apps.

This breaks the most important value proposition of blockchain technology: trustlessness. While Bitcoin does not require any trust in a third party, with NFTs, you are still dependent on trusting the authorities involved.

Future potential

Many experts agree on two things. First, NFTs have been quite the hype since 2020 and may be in a bubble fueled by a crypto bull market. Secondly, NFTs can potentially change the sports, art, and music industries in the long term.

Generally, tokenizing all physical assets and items through NFTs could turn many industries upside down.

Some even go so far as to predict a future in which nearly all activity and economic activity will be shifted to the Internet. We are talking about the so-called metaverse, in which NFTs could play a central role. The beginning has already been made in ​​gaming and virtual worlds. The expansion of GameFi is already in full swing.

For example, in a future financial economy, NFTs could serve as collateral against which to lend. This is already possible in DeFi, as the examples NFTfi and ETNA Network show.

Of course, there is no guarantee for such future scenarios. Too many questions are still unanswered. But NFTs will probably not disappear completely. In the 1990s, only a few believed that the Internet would become what it is today.

How to make money from NFTs?

If you want to make money with NFTs, you have two options. The most obvious option is speculation – i.e., buying NFTs cheap and selling them higher. Anyone who invested early in a rare CryptoPunk or a special monkey from the Bored Ape Yacht Club could achieve profits in the millions with a bit of luck. But even on a smaller scale, there has always been and still is the opportunity for investors to benefit from significant collectible price increases.

What should you consider before buying NFTs?

The following factors should be analyzed before purchasing an NFT (collectible in this case), which can help make a better investment decision. It should always be borne in mind that most NFT projects will probably have no (or very little) value in the long term.

Hype: How much is the NFT project talked about?

Roadmap: What is the team planning for features and benefits for NFT owners?

Brands: Who is promoting this project? (Influencers, Community, Awareness)

Team: Who are the initiators behind the NFT project?

Numbers: Average value of the collection, volume, floor prices

Community: How big is the community on Discord and Twitter?

Another way for artists and creatives to make money from NFTs is to create and sell their NFTs. Anyone can generate non-fungible tokens on NFT platforms such as OpenSea or Rarible. First of all, the work doesn’t matter. Images, avatars, and other art in JPG, PNG, or GIF format are popular, but an NFT can also be an MP4 video or audio file in MP3 format. There are hardly any limits to the imagination.

In contrast to the distribution of classical art, DVDs, or CDs, distribution as an NFT offers a major advantage: recurring revenue. Not only can NFT creators set a fixed selling price or start an auction for auction, but also royalties- and thus earn money with every further purchase. The technical implementation as a unique, unmistakable, non-fungible token in the blockchain makes it possible.

Conclusion

In conclusion, Non-Fungible Tokens (NFTs) have emerged as a transformative force in the digital landscape, redefining how we perceive and interact with digital assets. As blockchain technology continues to evolve and permeate various sectors, NFTs hold the potential to revolutionize not only the art world but also gaming, music, fashion, and beyond. However, amid the excitement and speculation surrounding NFTs, questions regarding sustainability, accessibility, and the long-term viability of this technology remain. Nevertheless, it is undeniable that NFTs have sparked a paradigm shift in our understanding of ownership and value in the digital age, leaving an indelible mark on the future of creativity, commerce, and culture.

FAQs

What exactly is an NFT?

An NFT, or Non-Fungible Token, is a digital asset that uses blockchain technology to represent ownership or proof of authenticity of a unique item or piece of content, such as digital art, music, videos, or collectibles. Unlike cryptocurrencies like Bitcoin or Ethereum, which are fungible and can be exchanged on a one-to-one basis, each NFT has distinct properties that make it one-of-a-kind and not interchangeable.

How do NFTs work?

NFTs utilize blockchain technology, a decentralized digital ledger that records transactions across multiple computers, whe; whenonewhenrcwhen onen NFT, a record of ownership is stored on the blockchain, including details about the item, its creator, and its transaction history. This ensures transparency and authenticity and provides a way to verify ownership and track the provenance of the NFT.

What can be turned into an NFT?

Virtually any digital file can be turned into an NFT, including artwork, music, videos, tweets, virtual real estate, and even virtual goods within video games. The key requirement is that the item must be unique or have some degree of scarcity to make it desirable as a collectible or investment. However, respecting copyright laws and intellectual property rights is essential when creating or selling NFTs based on existing content.

How are NFTs bought and sold?

NFTs are typically bought and sold on online marketplaces called NFT, where users can discover, buy, sell, and trade NFTs. These marketplaces often support various payment methods, including cryptocurrencies like Ethereum, and provide tools for creators to mint (create) NFTs, set royalties for secondary sales, and interact with buyers. Additionally, some NFTs are sold through auctions or direct sales facilitated by the creator or social media platforms.

What are the benefits and risks of investing in NFTs?

Investing in NFTs offers several potential benefits, including the opportunity to support artists and creators directly, own unique digital assets with provable ownership, and profit from the appreciation in value over time. However, there are also risks to consider, such as the speculative nature of the market, the lack of regulation and investor protection, potential copyright and legal issues, environmental concerns related to blockchain energy consumption, and the possibility of market volatility and price crashes. As with any investment, it’s crucial to conduct thorough research, understand the risks involved, and only invest what you can afford to lose.

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