NFT definition: A Non-Fungible Token (NFT) is a type of cryptographic token on a blockchain that represents a unique asset.

Unlike cryptocurrencies such as Bitcoin or Ethereum, which are fungible and can be exchanged on a like-for-like basis, NFTs are not interchangeable, as each one has unique attributes that set them apart.

NFTs can represent a broad spectrum of digital or physical assets, from digital art and music to virtual real estate and virtual goods within video games. They have found particular resonance within the digital arts sector, providing a blockchain-based proof of authenticity and ownership that has previously been hard to achieve for digital artists. This attribute introduces a scarcity factor into the digital world.

Fungibility is an essential characteristic of any currency aiming to act as a medium of exchange - all units of the currency, like the dollar or Bitcoin, should be interchangeable and indistinguishable from each other. NFTs, on the other hand, each contain distinguishing information and are valued as collectibles or forms of digital property because of their uniqueness.

A common use case of NFTs is within Decentralized Applications (DApps) on platforms like Ethereum, where they are often used to create and trade unique digital items and collectibles. For instance, CryptoKitties, one of the first blockchain games, brought NFTs to the spotlight by allowing players to purchase, collect, breed, and sell virtual cats, each represented by an NFT.

The value of each NFT is unique and varies based on its specific attributes and the market demand. They can be bought, sold, and traded on various NFT marketplaces.

NFTs are generally built using specific standards on the Ethereum blockchain, such as ERC-721 and ERC-1155. These standards provide a blueprint for developers to create NFTs and ensure their compatibility with existing infrastructure, like wallets and exchanges, which enhances their interoperability across the ecosystem.

NFTs have garnered significant attention for their potential to revolutionize ownership and exchange of a diverse range of assets in the digital economy. From representing in-game assets in video games to identifying digital identities and licenses, and even allowing for fractional ownership of artworks, NFTs introduce a new layer of functionality to the blockchain.

In conclusion, a Non-Fungible Token (NFT) is a cryptographic token that represents a unique item or piece of content on the blockchain. Unlike fungible tokens, such as cryptocurrencies, NFTs are not mutually interchangeable but are distinguished by their unique information. They are an integral part of the emerging digital economy, with broad implications for various fields like gaming, art, identity verification, and asset ownership.

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Michelle Legge
By Michelle LeggeHead of Crypto Tax Education
Updated Nov 21, 2023
This article has been fact checked and reviewed as per our editorial policy.