What is an NFT?

NFTs are involved in everything from art to event tickets and even real estate. But what is an NFT? And how do they actually work? Dive into the wide world of NFTs in our 2026 NFT Guide.

What is an NFT?

An NFT is a unique digital asset stored on a blockchain. Think of it as a digital certificate of authenticity linked to almost anything — artwork, music, videos, gaming items, or even a physical luxury product.

Non-fungible token means it’s not interchangeable on a like-for-like basis. One ETH is the same as another ETH, but each NFT is distinct. If you swap one NFT for another, you’re trading two completely different assets. For a closer look at how this works in practice, see our OpenSea NFTs guide.

NFTs differ from crypto in several ways. They can include creator royalties, ensuring artists earn from resales. They’re programmable, meaning NFTs can unlock perks like memberships, airdrops, or access to private events. They enable fractional ownership, letting people co-own high-value assets like art or land. And they’re globally accessible without intermediaries.

But NFTs also carry risks: market volatility, speculative projects, scams, environmental concerns, and illiquidity. Profits from NFTs, whether royalties, flips, or perks, are also taxable. The sheer scale of the market is clear when you look at the most expensive NFTs ever sold, with some fetching millions at auction.

How Do NFTs Work?

NFTs live on blockchains like Ethereum, Solana, Polygon, and Flow. Here’s how the lifecycle works:

1. Creation (Minting) – An NFT is minted using a standard like ERC-721 or ERC-1155. Metadata defines its uniqueness.

2. Ownership and Transfers – Once minted, NFTs can be bought, sold, or traded. All transactions are recorded on-chain.

3. Storage – Ownership lives on the blockchain, but the file itself may be stored via IPFS or centralized servers.

4. Smart Contracts – Creators can code royalties or perks into the NFT itself.

A Brief History of NFTs

2012–2014 – Early experiments like Colored Coins on Bitcoin explore unique tokens.
2017 – CryptoPunks and CryptoKitties launch on Ethereum.
2020 – OpenSea and Rarible make minting easy.
2021 – Beeple’s Everydays sells for $69M; NBA Top Shot surges; celebrity NFTs explode.
2022–2023 – Market cools; focus shifts to utility (gaming, ticketing, credentials).
2024–2025 – NFTs expand into AI-generated art, real estate tokenization, and enterprise use cases.

Examples of NFTs

NFTs can represent digital art from names like Beeple, XCOPY, and Pak; music NFTs released by artists such as 3LAU, Snoop Dogg, and Kings of Leon; collectibles like NBA Top Shot or Sorare cards; gaming items in titles such as Illuvium or Axie Infinity; and even event tickets like Coachella’s lifetime passes. Luxury brands are also experimenting with “digital twins,” creating blockchain-verified companions for products such as Gucci handbags or Rolex watches. If you want to stay ahead of what’s launching, keep an eye on the latest NFT drops.

Benefits of NFTs

NFTs offer clear benefits: proof of ownership through tamper-proof blockchain verification; royalties for creators baked into smart contracts; global reach without intermediaries; programmable perks like memberships or airdrops; and fractional ownership of high-value assets, making previously inaccessible markets more democratic.

Risks of NFTs

There are also clear risks. NFT prices are highly volatile, and many projects rely more on hype than utility. Scams, phishing attacks, and rug pulls are common. Although Ethereum’s shift to proof-of-stake reduced environmental impact, not all blockchains are energy efficient. Finally, NFTs can be illiquid, meaning finding a buyer at your asking price may take weeks or longer.

Types of NFTs

NFT Art and Collectibles

NFT art put the space on the map, from Beeple’s record-breaking Christie’s auction to PFP collections like CryptoPunks and Bored Ape Yacht Club. For more on the creators driving this movement, explore our guide to leading NFT artists.

NFT Trading Cards

NFT trading cards are blockchain versions of Pokémon or Magic: The Gathering, secured with scarcity and authenticity on-chain.
From Baseball to Blockchain
1880s – First baseball cards
1990s – Pokémon and MTG explode
2010s – Hearthstone and digital TCGs
2017+ – NBA Top Shot introduces NFT trading moments
Categories

• Collectible art cards (CryptoPunks, BAYC)
  Gaming cards (Axie Infinity, Splinterlands, Gods Unchained)
  Sports cards (NBA Top Shot, Sorare)
  Entertainment cards (Disney, Grimes)
  Membership cards (BAYC club access)

Notable Projects
NBA Top Shot, Sorare, Axie Infinity, Gods Unchained, Street Fighter NFTs, Trump NFTs

Challenges

• Copyright and IP ownership
  Speculative hype cycles
  NFT ≠ underlying IP rights

The traditional trading card market was worth more than $6 billion in 2022, and NFT cards are likely to grow with it. Collectors who want to secure cards early often follow upcoming NFT drops, while those facing declining values may want to explore strategies such as NFT tax loss harvesting.

Gaming NFTs and Metaverse Assets

Gaming NFTs include land, avatars, skins, and weapons in virtual worlds like Decentraland, Sandbox, and Illuvium.

Music, film and media NFTs

Musicians and creators are releasing albums, tickets, and VIP experiences as NFTs, giving fans new ways to engage and creators new income streams.

Tokenized real-world assets

NFTs can represent physical assets like luxury products, deeds, and certificates of authenticity.

NFT marketplaces

NFT marketplaces are the backbone of the NFT economy, connecting creators and collectors worldwide. The best NFT marketplaces include:

• OpenSea

• Rarible

• Blur

• Magic Eden

• Foundation

Each offers different strengths, with OpenSea known for its scale and Magic Eden for dominating the Solana NFT ecosystem. For a breakdown of how OpenSea works, including supported wallets and fees, see our OpenSea NFTs guide.

Rarible vs. OpenSea: Which NFT marketplace is best?

When it comes to buying, selling, trading, and creating NFTs, OpenSea and Rarible dominate. OpenSea, launched in 2017, is the largest NFT marketplace with more than 1.5 million active users. OpenSea supports ETH, WETH, SOL, USDC, DAI, and Polygon, and has become the go-to platform for visibility and liquidity.

Rarible, launched in 2020, takes a different approach. It is community-driven and decentralized, with a governance token (RARI) that allows users to vote on platform decisions. Rarible also allows creators to set royalties up to 50 percent, compared to OpenSea’s fixed 10 percent.

OpenSea is best for those prioritizing scale, simplicity, and low fees, while Rarible appeals to creators seeking flexibility, stronger community input, and fiat payment options. Many NFT traders use both platforms depending on their goals. Looking at their volume, it’s easy to see how both have helped drive sales of some of the most expensive NFTs to date.

Read next: How to Tax Loss Harvest NFTs

How to Start with NFTs

Buying Your First NFT

Set up a wallet such as MetaMask or Phantom, fund it with ETH, SOL, or MATIC, and browse marketplaces like OpenSea, Blur, or Magic Eden.

Selling Your First NFT

List your NFT at a fixed price or in an auction, set royalties if you’re the creator, and pay any gas fees required.

Minting Your First NFT

Creators can mint NFTs by uploading artwork, setting metadata, and choosing between lazy minting or traditional minting. Many creators test demand through lazy minting, where gas fees are paid by the buyer at the time of sale. Following NFT drops is often a good way to see what’s trending before minting.

What are Bitcoin Ordinals?

Bitcoin Ordinals are unique digital assets that are created by inscribing data, such as images, videos, or text, onto individual satoshis (the smallest units of Bitcoin). These inscribed satoshis function similarly to NFTs and can be bought, sold, and traded. By using the Bitcoin blockchain, Ordinals benefit from Bitcoin’s security and decentralization, making them a novel way to create digital collectibles.

Ordinals were first introduced in January 2023 by Casey Rodarmor, following upgrades to Bitcoin’s protocol like Segregated Witness (SegWit) and Taproot. These upgrades made it possible to store larger amounts of arbitrary data directly on the Bitcoin blockchain, allowing for the inscription of digital assets onto individual satoshis. This approach differs from traditional NFTs, which are usually minted on blockchains like Ethereum using smart contracts.

Are Bitcoin Ordinals controversial?

The introduction of Ordinals has sparked debate within the Bitcoin community. Some argue that inscribing large data files onto the Bitcoin blockchain, which was originally designed for financial transactions, leads to network congestion and higher transaction fees. This could potentially hinder Bitcoin’s primary use case as a decentralized currency.

Critics also express concerns about blockchain bloat, where the increasing amount of inscribed data could make running a Bitcoin node more resource-intensive. On the other hand, supporters believe that Ordinals add new value to the Bitcoin ecosystem by attracting more users and developers, ultimately increasing demand for block space, which could help Bitcoin miners in the long run.

Several Bitcoin Ordinals collections have gained prominence since the protocol launched, including:

• Taproot Wizards: Hand-drawn wizards by Udi Wertheimer, known for cultural references and pushing the limits of what Ordinals can do.

• Ordinal Punks: 100 pixel-art characters inspired by Ethereum’s CryptoPunks, bringing the iconic style to Bitcoin.

• TwelveFold: A generative AI art series from Yuga Labs (creators of BAYC), which helped legitimize Ordinals in the broader NFT market.

NFT Taxes

NFTs are taxable, and the IRS, ATO, HMRC, CRA, and EU tax offices all have rules.

Buying an NFT with fiat is not taxable. Buying with crypto counts as a disposal and may trigger capital gains tax. Selling NFTs is taxable, with investors paying capital gains and creators potentially owing income tax. Trading one NFT for another is also taxable. Minting is not taxable until a sale occurs. Our full NFT taxes guide explains these scenarios in detail.

The IRS has clarified that some NFTs may be taxed as collectibles under a 28 percent long-term capital gains rate, applying a “look-through” analysis to the underlying asset. UK, Australian, Canadian, and EU authorities treat NFTs broadly as crypto assets, though rules vary.

More complex cases include NFT farming or staking, which can be taxed as income, and even state-level sales taxes, as seen in Georgia. Investors can reduce their liability through NFT tax loss harvesting, offsetting gains with losses from underperforming NFTs.

Tools like Koinly make this process easier by tracking NFT transactions across wallets and generating reports for the IRS, HMRC, ATO, CRA, and more.

NFT risks and challenges

NFTs carry clear risks, including speculative hype, rug pulls, scams, copyright disputes, liquidity issues, and environmental criticism. Due diligence is essential before investing.

The Future of NFTs

Looking ahead, NFTs are likely to expand in gaming and metaverse economies, token-gated memberships, DeFi integrations such as NFT lending, dynamic and AI-generated NFTs, and enterprise applications in supply chains, real estate, and digital identity.

FAQs

What is an NFT?
A unique blockchain token proving digital ownership.

Why are NFTs valuable?
Scarcity, utility, and community.

Are Solana NFTs cheaper than Ethereum NFTs?
Yes, fees are much lower.

Can I create my own NFT art?
Yes, anyone can mint NFTs.

Are NFTs a fad?
The hype cycle cooled, but enterprise adoption is rising.

What is an NFT?

An NFT, or non-fungible token, is a one-of-a-kind digital asset stored on a blockchain. Unlike regular cryptocurrencies such as Bitcoin or Ethereum, each NFT is unique and can’t be swapped on a like-for-like basis.

Think of NFTs as digital certificates of authenticity that can be linked to almost anything: artwork, music, videos, collectibles, or even a ticket to a real-world event. They’re powered by blockchain technology, which ensures that the record of ownership and the asset’s uniqueness can’t be tampered with.

The term “non-fungible” just means that the token has its own distinct properties. You can trade one Bitcoin for another Bitcoin and have the same thing, but if you trade one NFT for another NFT, you’re swapping two completely different items.

Read next: OpenSea NFTs Guide

How do NFTs work?

NFTs live on blockchain networks, most often Ethereum, though other blockchains like Solana, Polygon, and Flow are also popular.

Here’s the basic process:

1. Creation (minting): An NFT is “minted” onto the blockchain using a standard like ERC-721 or ERC-1155. This step gives the NFT its unique metadata, ownership record, and sometimes links it to a digital file like an image or video.

2. Ownership & transfers: Once minted, an NFT can be bought, sold, or traded. All these transactions are recorded on the blockchain, making it publicly verifiable.

3. Storage: The NFT’s ownership record is on the blockchain, but the associated file (like an image) might be stored off-chain in places like IPFS (InterPlanetary File System) or centralized servers.

4. Smart contracts: These self-executing pieces of code allow NFT creators to set special rules, like automatically earning royalties each time the NFT is resold.

The main difference from cryptocurrencies is fungibility: one Ether (ETH) is exactly the same as another Ether, but each NFT is completely distinct.

History of NFTs

Here’s a quick timeline of how NFTs have evolved:

• 2012–2014: Early experiments like Colored Coins on Bitcoin’s blockchain explore the idea of unique tokens.

• 2017: CryptoPunks and CryptoKitties launch on Ethereum, introducing NFTs to the mainstream crypto audience.

• 2020: Platforms like Rarible and OpenSea gain popularity, making it easier for creators to mint and sell NFTs.

• 2021: The NFT boom. Beeple’s “Everydays” sells for $69 million at Christie’s, NBA Top Shot surges in popularity, and celebrities start dropping their own NFT collections.

• 2022–2023: Market correction as NFT hype cools, but utility-focused projects emerge (gaming, ticketing, identity).

• 2024–2025: NFTs expand into real-world applications like event passes, real estate tokenization, and AI-generated collectibles.

Examples of NFTs

NFTs can represent a huge range of assets, both digital and physical. Some real-world examples include:

• Digital art:  Beeple’s Everydays series, XCOPY’s animated glitch art, or Pak’s Merge project.

• Music NFTs: Artists like 3LAU and Snoop Dogg are releasing songs and albums as NFTs, granting fans perks like exclusive concert access.

• Collectibles: NBA Top Shot moments, Sorare football cards, or Pokémon-inspired Axie Infinity creatures.

• Gaming items: Wearables in Decentraland, rare skins in Illuvium, or weapons in Big Time.

• Event tickets: Coachella NFT passes offering lifetime entry, or sports teams issuing blockchain-verified tickets.

• Physical assets: Luxury brands linking NFTs to real handbags, watches, or sneakers as proof of authenticity.

Read next: Upcoming NFT Drops

Benefits of NFTs

Proof of ownership

At the heart of NFTs is blockchain verification, which acts like a public, tamper-proof receipt. If you own an NFT, anyone can confirm that ownership by looking at the blockchain record. This transparency makes NFTs especially valuable for digital art, collectibles, and rare items, where proving authenticity has always been tricky. It’s the difference between saying “trust me” and being able to point to an immutable public record.

Royalties for creators

One of the most game-changing features of NFTs is the ability to bake royalties into the token’s smart contract. This means artists, musicians, and other creators can automatically earn a percentage every time their NFT is resold, forever. Traditional art markets don’t offer this kind of recurring income, so for many creators, NFTs aren’t just a one-time payday, but a potential source of ongoing revenue.

Global reach

Because NFTs live on decentralized blockchains, there’s no middleman controlling where they can be sold or who can buy them. Whether you’re an artist in Tokyo selling to a collector in New York, or a game developer in Brazil trading assets with someone in France, NFTs make cross-border transactions as simple as sending an email.

Programmable utility

NFTs aren’t just static images or files; they can have extra perks programmed in. For example, owning an NFT might grant you access to exclusive Discord channels, early product drops, or even future airdrops of other tokens. Some NFTs can even evolve over time, changing their appearance or features based on real-world events or how the owner interacts with them.

Fractional ownership

For high-value items like luxury art or rare real estate, NFTs can be split into smaller, tradeable fractions. This lets multiple people share ownership of a single asset, kind of like owning shares in a company, except it’s shares of a Monet painting or a prime piece of metaverse land.

Risks of NFTs

Market volatility

The NFT market moves fast, sometimes too fast. Prices can spike overnight based on hype, then crash just as quickly. If you buy at the peak of a trend, you could see your investment lose significant value in days or even hours.

Speculative nature

While some NFT projects have clear long-term value, many are built purely on hype. Without ongoing development, community support, or a real use case, these projects can fade quickly, leaving holders with digital collectibles that nobody wants to buy.

Scams & fraud

The NFT space is still young and largely unregulated, which means scams are common. Fake collections can pop up overnight, phishing sites try to trick users into giving up their wallet access, and “rug pulls” happen when project founders disappear with investors’ money.

Environmental concerns

Although Ethereum’s shift to proof-of-stake in 2022 drastically reduced its carbon footprint, not all blockchains use energy-efficient systems yet. Some still rely on proof-of-work, which consumes a lot of electricity. This environmental impact remains a point of criticism for NFTs.

Illiquidity

Unlike stocks or major cryptocurrencies, NFTs don’t have a constant market of buyers. If you want to sell your NFT, you might wait days, weeks, or months to find someone willing to pay your asking price, if they buy at all.

How are NFTs used in real life?

• Gaming: NFTs are shaking up the gaming industry by letting players truly own their in-game assets. A sword, skin, or rare mount bought in one game can potentially be traded or sold outside of it, sometimes even used in other compatible games. Titles like Axie Infinity and Illuvium are leading this charge.

• Events & memberships: An NFT can be your ticket to an event, but it can also be a lasting digital collectible after the event ends. Coachella sold lifetime festival passes as NFTs, while other projects use NFTs to grant VIP memberships to clubs, restaurants, or online communities.

• Real estate: In both the real and virtual worlds, NFTs are being used to prove ownership of land and property. In the metaverse, platforms like The Sandbox and Decentraland sell plots of virtual land as NFTs. In the physical world, tokenization projects are experimenting with turning deeds and titles into NFTs for easier transfer and verification.

• Identity & credentials: NFTs can also serve as verifiable credentials. Think diplomas, certifications, or licenses stored on the blockchain. This makes them nearly impossible to forge and easy to verify without contacting an issuing authority.

• Fashion & luxury goods: Luxury brands are embracing “digital twins”, so NFTs that correspond to physical products. This way, a Gucci bag or Rolex watch can come with a digital proof of authenticity that travels with it, making counterfeiting far harder.

How do NFTs make money?

NFTs make money in several ways. The most direct is through primary sales, where creators mint and sell NFTs to collectors, like Beeple’s Everydays, which sold for $69 million at Christie’s in 2021. They can also earn ongoing royalties, with smart contracts sending a percentage of every resale back to the original creator, a model especially powerful for artists and musicians.

Some traders profit by “flipping” NFTs, buying early and selling when demand spikes, as seen with early Bored Ape Yacht Club buyers who paid about $200 and later sold for hundreds of thousands. Others focus on utility-based NFTs, which grant perks like exclusive event access, premium content, or commercial rights that can themselves generate income.

Read next: What's the Most Expensive NFT?

Don’t forget the tax bill…

Any profits from trading or selling NFTs are taxable. You can learn more in our NFT tax guide, or sign up to Koinly to calculate your NFT taxes.