What Is an NFT? What You Actually Own When You Buy One

On 11 March 2021 Christie's, an auction house trading since 1766, closed bidding on a work with no canvas, no frame and no physical form at all. The lot was a JPEG, Beeple's 'Everydays: The First 5000 Days', one image made every day for five thousand days and stitched into a collage, and the final price was $69.3m, which the buyer paid in ether, a first for the house. Everyone watching could right-click the artwork, hit save and keep a perfect copy for nothing.

That last fact is the whole subject: the copy was free, yet the record of who owned the original sold for $69.3m. That gap is what a non-fungible token is. This guide walks the gap without selling you anything: it is not financial advice, and it holds no view on what any NFT should cost.

One of one

Swap your tenner for mine and nothing has changed for either of us, because money is fungible and one bitcoin equals any other bitcoin. An NFT is the opposite arrangement, a token on a blockchain that is one of one, so token 4,732 in a collection is that item and no other, with a look and a past that nothing else substitutes for.

Ethereum standardised the format in 2018 as ERC-721. Dull name, large effect: once unique tokens shared a standard, any wallet or marketplace could recognise and trade all of them, and a market grew around them.

What you actually own

Strip off the auction glamour and an NFT is a database entry with an excellent memory. It records which address owns item number such-and-such, plus every transfer since the item was created, or minted. That trail is provenance, and provenance is the expensive word in physical art too: the paperwork proving your Picasso passed from Picasso.

The image itself usually is not on the blockchain, which is the part that surprises people. Storing pictures on Ethereum costs a fortune, so most tokens hold a pointer instead, a web URL or an address on IPFS, a distributed file network, and some early projects kept their art on ordinary servers that later went dark, leaving tokens that point at nothing, so the receipt survived while the thing it described did not.

So the right-click question gets its straight answer: saving the image gives you a flawless copy, free, and nothing on any chain prevents it. What you cannot copy is the ledger entry naming which address holds the original token.

That entry is the entire product.

Whether provenance without exclusivity deserves money is the honest open question underneath all of this, and it is not settled. The market said yes in 2021 at full volume and has said so far more quietly since, so anyone who tells you the question is closed is guessing, whichever answer they favour.

Buy an NFT and you have not normally bought the copyright either, because that stays with the artist unless the project's licence grants rights, so read the terms before you plan merchandise.

Kitties, punks and a very strange spring

You can trace the form back to June 2017, years before the mania, when a two-person studio called Larva Labs released CryptoPunks, 10,000 pixel faces claimable for nothing beyond the gas fee. CryptoKitties followed that November, a game about breeding cartoon cats, and by December the cats had congested the entire Ethereum network so thoroughly that transactions queued for hours and fees jumped, and a cat game had found the ceiling of a world computer.

Beeple's Christie's result in March 2021 put NFTs on front pages, and the market's energy moved to profile-picture collections, 10,000-piece sets of algorithmically generated apes and punks and cats that people bought partly as art and mostly as status and a bet. Bored Ape Yacht Club launched in April 2021 and became the emblem, and by the time Twitter added hexagonal NFT profile pictures in January 2022 the market was close enough to the top for the gesture to sound like a bell. Trading volumes and floor prices across the collections collapsed through 2022 and 2023, the ordinary end of a mania, and the chain kept its permanent record of every step.

Royalties: the promise that lapsed

Creator royalties were the boom's favourite pitch to artists: a cut of every future resale, often 5 or 10 per cent, forever, and people assumed the chain enforced it. It did not. Royalties were marketplace policy, and once volumes dried up and platforms began fighting over the traders who remained, the policy bent. Through 2023 the big marketplaces made creator fees optional, OpenSea among them that August, and the forever-income pitch went quiet.

Where the idea still works

Away from the collections, one-of-one tokens kept finding jobs. The Ethereum Name Service has issued names like yourname.eth since 2017, and the name is a token that routes payments to your address, sits in your own wallet and sells on like anything else you hold. Ticketing pilots keep returning to the format because a ticket with a public one-of-one history is awkward to counterfeit and quick to check, and games issue swords and skins as tokens so players can trade them outside the publisher's shop. Provenance earns its keep in these cases because the token is the asset itself rather than a pointer at a file on someone else's server, so checking the record settles who owns the name or who gets into the venue.

How people get hurt

Wash trading came first: traders sold a token back and forth between their own wallets to fake demand and manufacture a price history, and sometimes the point was farming a marketplace's reward tokens, so treat any volume chart from the boom years with proper scepticism. Stolen work was everywhere too, because minting a file proves nothing about who made it, and artists kept finding whole catalogues minted and sold by strangers.

The nastiest is approval phishing: in April 2022 the Bored Ape Yacht Club Instagram account was hijacked and posted a counterfeit mint link, and wallets that connected and signed were emptied.

One signature.

That is all it takes: token approvals get a section of their own in our dapp guide, and the only sensible speed near a hyped mint is slow.

Buying one, mechanically

Buy one and you pay in the coin of its chain, usually ether, with gas, the network's transaction fee, stacked on top. The ether has to sit in a wallet you control before anything else happens, the wallet then connects to a marketplace, and you look at gas before bidding because at busy moments it turns silly, to the point that during the hottest 2021 mints the fee could cost more than the item itself. Check both numbers before you sign.

The ether leg is the job of an on-ramp. Banxa has run that fiat-to-crypto plumbing since 2014 and takes 100-plus payment methods across 100-plus countries in the markets it serves, and because its quote locks for roughly 3 minutes at checkout, the figure you approve is the figure that settles. Card orders typically complete within about 10 minutes of issuer approval. No service will choose which token deserves your money though, however smooth the payment leg gets.

Nobody needs to pay to enjoy the picture, so the only thing the purchase ever buys is the receipt, and a receipt is worth buying slowly if it is worth buying at all. Read the licence and check the seller and price the gas before you sign anything, because the hurry around a hyped mint is manufactured by people who profit from it.