What’s an NFT? How Do They Work?

If you have spent time around cryptocurrency, digital art or blockchain technology, you have probably heard about NFTs. But what’s an NFT, and why would anyone pay for a digital asset when other people may still be able to see or copy the image online?

NFT stands for non-fungible token. In simple terms, it is an individually identifiable digital token recorded on a blockchain. NFTs can be associated with artwork, collectibles, gaming items, tickets, memberships and even certain real-world assets. Understanding what is an NFT starts with recognising that the token itself, rather than simply the picture attached to it, is what makes the concept different.

What Is an NFT?

The easiest way to understand an NFT is to look at the word “fungible”.

A fungible asset can generally be exchanged for another equivalent unit. One £10 note can be exchanged for another £10 note without materially changing what you own. Cryptocurrencies such as Bitcoin also aim to be fungible, since one unit performs essentially the same function as another.

A non-fungible asset is individually distinguishable. A numbered concert ticket, rare trading card or original artwork cannot necessarily be replaced by another one.

So, what’s an NFT? It is a token that uses blockchain technology to identify something in a unique way. Ethereum describes NFTs as individually unique tokens that can represent digital or real-world items, with ownership information recorded on the blockchain.

How Do NFTs Work?

NFTs are generally created, or “minted”, through smart contracts. A smart contract is a programme that runs on a blockchain and applies predetermined rules.

Ethereum NFTs commonly use standards such as ERC-721 and ERC-1155. ERC-721 provides a standard for individually identifiable non-fungible tokens, while ERC-1155 can manage several types of fungible and non-fungible tokens through one contract.

When an NFT is minted, it receives identifying information such as a token ID. The blockchain can then record which wallet owns that token and track subsequent transfers.

However, an important point is often overlooked when people ask what is NFT technology: the NFT is not necessarily the image itself.

An NFT’s metadata can contain a link to an image, video or other digital file. For example, Ethereum’s NFT development documentation shows how metadata can point to an image stored through IPFS rather than storing the entire image directly inside the token.

This also means “unique NFT” does not always mean “one-of-a-kind image”. Several tokens could form part of an edition while still having individually identifiable token IDs.

Why Did NFTs Become So Popular?

NFTs existed before the major boom of 2021, but expensive digital-art sales pushed them into mainstream attention.

One of the best-known examples came in March 2021, when Christie’s sold Beeple’s Everydays: The First 5000 Days for US$69,346,250. Christie’s described it as the first purely digital NFT-based artwork offered by a major auction house.

Sales such as this helped create the perception that NFTs were primarily expensive digital pictures.

However, the technology itself has broader applications.

What Are NFTs Used For?

For anyone asking what are NFTs beyond digital artwork, their main purpose is to provide an identifiable digital token that can represent an asset, access right or credential.

Ethereum identifies applications including digital art, in-game items, proof of event attendance, course certificates, online identity, access to content and tokenisation of real-world assets. ERC-721 documentation also highlights potential applications such as access keys and numbered seats for concerts and sporting events.

Gaming is another important use case. An NFT could represent a character, weapon, virtual land or collectible that has an identifiable ownership history.

The idea can also extend to memberships and physical collectibles, where the blockchain token acts as a digital record connected to something outside the blockchain.

Can You Just Screenshot an NFT?

Yes, in many cases you can screenshot or download the image associated with an NFT.

What you do not receive from that screenshot is the actual blockchain token.

A similar comparison would be photographing a rare physical painting. You now have an image of the artwork, but that photograph does not mean you own the original painting.

There is another important limitation. Blockchain records can help verify the history and ownership of a particular token, but this does not automatically prove that the person who originally created the NFT owned the copyright to the associated artwork.

Does Buying an NFT Give You Copyright?

Usually, no.

Owning an NFT and owning the intellectual property behind the associated artwork are separate concepts.

A joint study by the US Copyright Office and US Patent and Trademark Office found widespread confusion about the intellectual property rights involved in creating, selling and transferring NFTs. The agencies concluded that existing IP laws were generally sufficient and that changes specifically for NFTs were not currently necessary.

NFT buyers should therefore check what rights are actually included. Ownership may provide control over the token without granting permission to reproduce, sell merchandise using, or commercially exploit the underlying artwork.

What Makes NFT Prices Rise or Fall?

Understanding what’s an NFT also means understanding that being unique does not automatically make something valuable.

NFT prices are largely driven by supply and demand. Rarity can matter, but so can the reputation of the creator, popularity of the collection, community interest, utility, broader cryptocurrency sentiment and the number of buyers willing to trade the asset.

Liquidity is particularly important. An NFT may have a quoted floor price, but that does not guarantee somebody will buy an individual token at that price.

Market conditions can also change quickly. The Block’s 2026 Digital Assets Outlook estimated annualised NFT trading volume for 2025 at around US$5.5 billion, substantially below earlier peak levels. Around 45% of 2025 NFT volume took place on Ethereum, while activity became increasingly concentrated among a smaller number of established projects and intellectual-property ecosystems.

This helps explain why NFT prices can fluctuate significantly. A collection can lose value when demand falls, liquidity disappears or attention moves elsewhere, even if nothing technically changes about the NFT itself.

Are NFTs Still Relevant in 2026?

The NFT market today looks very different from the speculative boom of 2021 and 2022.

The Block characterised the 2026 outlook as increasingly selective, with stronger activity concentrated among projects connected to recognisable intellectual property, products and active communities. At the same time, marketplaces have increasingly expanded beyond traditional NFT collectibles towards broader digital-asset services.

The takeaway is not necessarily that NFTs have disappeared. Instead, the focus is increasingly shifting from expensive profile pictures towards uses such as gaming, memberships, physical collectibles and other forms of tokenised ownership.

There has also been regulatory clarification. In March 2026, the US Securities and Exchange Commission said digital collectibles representing assets such as artwork, music, trading cards and in-game items are not themselves securities, although the way a crypto asset is structured or sold can still create securities-law considerations. This is US guidance, and regulatory treatment can differ between jurisdictions.

What Are the Risks of NFTs?

NFTs can be highly speculative. Prices may fall sharply, and some assets may have very few potential buyers.

There are also risks from fraudulent projects, stolen artwork, fake marketplaces, malicious wallet approvals and compromised private keys. Buyers should also check where an NFT’s underlying metadata and files are stored, since not every NFT keeps all of its associated content permanently on-chain.

Most importantly, blockchain technology can record ownership of a token, but it cannot guarantee that the token will retain its market value.

Conclusion

So, what’s an NFT? It is a non-fungible token, meaning an individually identifiable blockchain-based token that can represent or be associated with a particular asset, right or digital item.

NFTs first became widely recognised through digital-art sales, but their potential applications extend to gaming items, tickets, memberships, credentials and tokenised physical assets.

The technology can establish an identifiable blockchain record, but uniqueness alone does not create value. Anyone considering buying an NFT should understand what the token actually represents, what rights come with it, how its associated content is stored and whether there is genuine demand for the asset.

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