Glossary · NFT & Web3
What is NFT (Non-Fungible Token)?
A unique on-chain token representing ownership of a specific item — art, in-game items, domain names, identity. Each NFT is distinguishable; one BTC equals another, but two NFTs from the same collection are not interchangeable.
Last updated April 30, 2026
How it works
Standard fungible tokens (ERC-20 like USDC, UNI) are interchangeable — every USDC is identical to every other USDC. Non-fungible tokens (ERC-721 standard on Ethereum, similar on other chains) carry a unique identifier within a collection. Token #1 of CryptoPunks is different from Token #2; they have different attributes, different ownership history, and (per the market) different prices.
The token itself usually points to off-chain metadata — image URL, traits — stored on IPFS, Arweave, or sometimes (regrettably) regular HTTPS servers. The on-chain part is just the ownership record + a pointer.
| Fungible (ERC-20) | Non-fungible (ERC-721) | |
|---|---|---|
| Example | USDC, UNI | CryptoPunks, Bored Apes |
| Each unit | Identical | Unique |
| Use case | Money, governance, utility | Art, collectibles, identity |
| Tracked by | Balance | Ownership of specific token IDs |
Example
A typical Bored Ape Yacht Club NFT:
- Contract address:
0xBC4CA0EdA7647A8aB7C2061c2E118A18a936f13D - Token ID: e.g. #8817
- Metadata: points to a JSON file describing the ape's traits (background, fur, eyes, mouth, hat)
- Image: linked from the metadata, hosted on IPFS
The ERC-721 contract maintains a mapping of token ID → owner address. Transfer happens by calling transferFrom; whoever owns it can sell, gift, or use it. The marketplace contract (OpenSea, Blur) handles the buy/sell side.
NFT markets peaked in 2021–2022 (BAYC floor hit ~150 ETH = $400k+ in April 2022) and contracted significantly by 2024 (BAYC floor ~10-15 ETH). The volume drop hasn't killed the category but reset expectations dramatically.
Why it matters
NFT use cases that have actually worked:
- PFP collections — Bored Apes, CryptoPunks, etc. as digital identity / community membership
- Domain names — ENS (.eth) and similar
- Tickets, memberships — niche but growing
- In-game items — uneven track record but improving
- Music / creator royalties — modest traction, mostly small artists
- Real-world asset wrappers — early-stage; tokenized real estate, treasuries
What largely hasn't worked:
- NFT-as-investment for the general public. Most 2021-era collections are down 80%+ from peak. The tradable supply, royalties manipulation, and wash-trading concerns have all been issues.
- Generative art mass adoption. A handful of artists have built sustainable careers; most projects are illiquid.
- PFP utility narratives. Many "PFPs unlock X benefits" promises haven't materialized.
For investing in NFTs:
- Floor price isn't always the right anchor. Rare traits can sell for 10x the floor; the floor is the most-liquid bottom of the collection.
- Royalties are a battleground. Creators get 5-10% of secondary sales by default; some marketplaces (Blur) have made royalties optional, eroding creator revenue.
- Liquidity dries up fast. A collection with $5M daily volume can fall to $50k within months as attention rotates. Exiting is much harder than entering.
- Tax treatment is rough. Every trade is a taxable event; calculating cost basis across hundreds of trades is brutal without specialized software.
The category isn't dead but the speculative phase is. Long-term NFT use cases (identity, tickets, real-world tokenization) are slow-burn; pure collecting is for collectors who would value the items even if the market disappeared tomorrow.