A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger.[1] Types of NFT data units may be associated with digital files such as photos, videos, and audio. Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies, such as Bitcoin.
NFT ledgers claim to provide a public certificate of authenticity or proof of ownership, but the legal rights conveyed by an NFT can be uncertain. NFTs do not restrict the sharing or copying of the underlying digital files and do not prevent the creation of NFTs with identical associated files.
NFTs have been used as a speculative investment, and they have drawn criticism for the energy cost and carbon footprint associated with validating blockchain transactions as well as their frequent use in art scams.[2]
Description
An NFT is a unit of data stored on a digital ledger, called a blockchain, which can be sold and traded.[3] The NFT can be associated with a particular digital or physical asset (such as a file or a physical object) and a license to use the asset for a specified purpose.[4] An NFT (and, if applicable, the associated license to use, copy or display the underlying asset) can be traded and sold on digital markets.[5] The extralegal nature of NFT trading usually results in an informal exchange of ownership over the asset that has no legal basis for enforcement,[6] often conferring little more than use as a status symbol.[7]
NFTs function like cryptographic tokens, but, unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs are not mutually interchangeable, hence not fungible. While all bitcoins are equal, each NFT may represent a different underlying asset and thus may have a different value.[8] NFTs are created when blockchains string records of cryptographic hash, a set of characters identifying a set of data, onto previous records therefore creating a chain of identifiable data blocks.[9] This cryptographic transaction process ensures the authentication of each digital file by providing a digital signature that is used to track NFT ownership.[9] However, data links that point to details such as where the art is stored can be affected by link rot.[10]
History
Early history (2014–2017)
The first known "NFT", Quantum,[18] was created by Kevin McCoy and Anil Dash in May 2014, consisting of a video clip made by McCoy's wife Jennifer. McCoy registered the video on the Namecoin blockchain and sold it to Dash for $4, during a live presentation for the Seven on Seven conference at the New Museum in New York City. McCoy and Dash referred to the technology as "monetized graphics".[19] A non-fungible, tradable blockchain marker was explicitly linked to a work of art, via on-chain metadata (enabled by Namecoin). This is in contrast to the multi-unit, fungible, metadata-less "colored coins" of other blockchains and Counterparty.[20]
In October 2015, the first NFT project, Etheria, was launched and demonstrated at DEVCON 1 in London, Ethereum's first developer conference, three months after the launch of the Ethereum blockchain. Most of Etheria's 457 purchasable and tradable hexagonal tiles went unsold for more than five years until March 13, 2021, when renewed interest in NFTs sparked a buying frenzy. Within 24 hours, all tiles of the current version and a prior version, each hardcoded to 1 ETH ($0.43 at the time of launch), were sold for a total of $1.4 million.[21]
The term "NFT" only gained currency with the ERC-721 standard, first proposed in 2017 via the Ethereum GitHub, following the launch of various NFT projects that year.[22][23] The standard coincided with the launch of several NFT projects, including Curio Cards, CryptoPunks (a project to trade unique cartoon characters, released by the American studio Larva Labs on the Ethereum blockchain)[24][25][26] and rare Pepe trading cards.[22]
Increased public awareness (2017–present)
The 2017 online game CryptoKitties was monetized by selling tradable cat NFTs, and its success brought some public attention to NFTs.[27]
The NFT market experienced rapid growth during 2020, with its value tripling to $250 million.[28] In the first three months of 2021, more than $200 million were spent on NFTs.[29]
In the early months of 2021, interest in NFTs increased after a number of high-profile sales and art auctions.[30]
Uses
Commonly associated files
NFTs have been used as a means of exchanging digital tokens that link to a digital file. Ownership of an NFT is often associated with a license to use the underlying digital asset, but generally does not confer copyright to the buyer. Some agreements only grant a license for personal, non-commercial use, while other licenses also allow commercial use of the underlying digital asset.[31]
Digital art
Some digital art NFTs, like these pixel art characters, are examples of generative art.
Digital art is a common use case for NFTs.[32] High-profile auctions of digital art as NFTs have received considerable public attention, with the work "Merge" by artist Pak being the most expensive NFT with a a price of $91.8 million dollars[33] and Everydays: the First 5000 Days, by artist Mike Winkelmann (known professionally as Beeple), the second most expensive auction at US$69.3 million in 2021.[5][34]
Some NFT collections, including EtherRocks and CryptoPunks are examples of generative art, where many different images can be created by assembling a selection of simple picture components in different combinations.[35]
In March 2021, the blockchain company Injective Protocol bought a $95,000 original screen print entitled Morons (White) from English graffiti artist Banksy, and filmed somebody burning it with a cigarette lighter, with the video being minted and sold as an NFT.[36][37] The person who destroyed the artwork, who called themselves "Burnt Banksy", described the act as a way to transfer a physical work of art to the NFT space.[38]
Games
Main article: Blockchain game
NFTs can be used to represent in-game assets, such as digital plots of land, which some commentators describe as being controlled "by the user" instead of the game developer[39] by allowing assets to be traded on third-party marketplaces without permission from the game developer.[40]
CryptoKitties was an early successful blockchain online game where players adopt and trade virtual cats. The monetization of NFTs within the game raised a $12.5 million investment, with some kitties selling for over $100,000 each.[27][41][42] Following its success, CryptoKitties was added to the ERC-721 standard, which was created in January 2018 (and finalized in June).[43][22] A similar NFT-based online game, Axie Infinity, was launched in March 2018.
In October 2021, developer