NFT

An NFT is a blockchain-issued token representing a unique asset. Unlike bitcoin or ethereum, where one unit is interchangeable with another, each NFT is distinct and irreplaceable. The underlying asset might be digital (an image, video, or music file), physical (a house title or piece of art), or abstract (a membership, license, or domain name). The NFT proves ownership of the asset—or, more precisely, it proves ownership of a record claiming ownership.

Fungibility and uniqueness

Fungibility means interchangeability. One Bitcoin is worth the same as any other Bitcoin; they are fungible. One Rembrandt painting is not worth the same as another Rembrandt; they are non-fungible. NFTs solve the blockchain-uniqueness problem: they allow you to create a digital asset that cannot be copied, counterfeited, or substituted.

Technically, what the NFT proves is not ownership of the underlying asset but ownership of a record on a blockchain asserting that fact. If an NFT says “this token represents the Mona Lisa,” it does not prevent you from looking at the Mona Lisa in the Louvre or downloading an image of it. The token proves a legal or social claim of ownership, not a physical monopoly.

Use cases: art, collectibles, and beyond

The most prominent NFT use case in 2021–2022 was digital art: artists created images, embedded them on IPFS (a decentralized storage network), and minted NFTs pointing to them. Collectors would buy and sell the NFTs on marketplaces like OpenSea, Rarible, or LooksRare, paying millions for JPEG files. Much of this activity was speculative—buyers believed the token would appreciate because others would want it—rather than rooted in the utility of owning a digital image.

Real-world use cases have proven more durable: real-estate titles issued as NFTs on land registries in developing countries, event tickets issued as NFTs to prevent counterfeiting and scalping, domain names issued as NFTs, and video-game assets (skins, weapons, virtual land) issued as NFTs so players can sell them on secondary markets. These use cases benefit from NFTs because the uniqueness and transferability have economic value.

Professional sports jumped in: NBA Top Shot (digital collectibles of basketball moments) and similar projects found enthusiastic audiences. Intellectual property licensing—where a creator issues NFTs to license derivative works—is a smaller but growing category.

The environmental critique

Early NFTs were minted on Ethereum using proof-of-work, which requires energy-intensive mining. A single mint could consume hundreds of kilowatt-hours, generating substantial carbon emissions. Environmental criticism mounted, and many artists distanced themselves from NFTs. After Ethereum’s 2022 transition to proof-of-stake, which is roughly 99.9% more efficient, this critique largely subsided. However, it damaged NFT reputation during the crucial 2021 moment when adoption could have accelerated.

The ownership and custody problem

An NFT does not guarantee ownership of the underlying asset unless the blockchain is integrated with legal systems. A person could mint an NFT claiming to represent the Mona Lisa, even though they have no legal right to it. If you buy the NFT, you own a record on the blockchain, not necessarily the thing it claims to represent. This creates a perverse incentive: to mint NFTs of things you do not own and sell them to the credulous.

Custody of the underlying asset is also unresolved. If you own an NFT representing a piece of physical art, where is the art stored? Who ensures it is not damaged or replaced? If the art is digital (a JPEG), it could disappear if IPFS nodes stop hosting the file. Many NFT projects use centralized servers, so if the company goes bankrupt, the link breaks and the token becomes unmoored from its asset.

Market contraction and maturation

The NFT market peaked in January 2022 at roughly $25 billion in monthly trading volume. By 2024, monthly volume had contracted to a few hundred million dollars. The collapse reflected two forces: the bursting of speculative bubbles (much of the trading was driven by market-timing bets rather than asset demand), and the realization that most art NFTs had no use case beyond speculation.

Surviving projects tend to serve genuine functions: gaming NFTs remain popular because they grant in-game utility; domain-name NFTs (.eth addresses on Ethereum) serve as usernames and wallet identifiers; membership or ticket NFTs grant access to events or communities. These use cases do not depend on NFTs becoming a mass-market art market.

The legal future

Most countries have not codified NFT ownership into law. If you own an NFT representing land, most jurisdictions would not automatically recognize it as proof of ownership—you would need to register separately in the traditional land registry. Over time, governments may issue legal recognition (El Salvador has begun experimenting with issuing land titles as NFTs), but integration with existing law remains slow and uncertain.