NFT tokens: what are they and how do they work?

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An NFT token, or non-fungible token, is a unique type of cryptocurrency asset that represents ownership of a specific item, such as a digital artwork, video, or in-game object. NFTs cannot be forged, divided, or exchanged on a one-to-one basis like regular cryptocurrencies. They are widely used to prove ownership and authenticity of digital assets, secured by blockchain technology.

This article explores what NFTs are, how they work, and what sets them apart from other crypto assets. We’ll also break down the key technologies behind them, analyze their market dynamics, and look at both the opportunities and risks for traders and investors entering the space.

What is an NFT?

NFT is a non-fungible token, which means that this token or a group of tokens are absolutely unique. They cannot be equally exchanged and the information contained in them is unique. NFTs can be of different value, depending on the data stored in them.

Every NFT token is unique and therefore it is simply impossible to equally exchange it. They may contain different information, making the value of a token or a group of tokens different. Even if you exchange one token with another one of the same value, you will have an entirely different NFT containing absolutely different information.

NFTs cannot be split. It is impossible to make two tokens out of one with the equal, half, value. It can only be one and the information contained in it cannot be changed or damaged. However, NFTs can be composite in nature. For example, one album of 10 songs can be encrypted in 10 different tokens.

NFT use cases

The uniqueness of NFTs is that they can carry different encrypted information.

For example, these tokens can be associated (contain) with:

Art;
Music;
Text;
Video;
3D models, etc.

In the 4 years of existence of the NFTs, many people have already used this technology. Let’s see some of the examples.

NFT in Music

DJ 3LAU became the first musician in the world to sell his new album via an NFT. He earned $11.6 from the sale of his album through non-fungible tokens. Also another artist Grimes sold her album through NFTs. In total, she sold 400 NFTs with her album, making $5.8 million.

An unpublished song by Elon Musk could have become another example. In this Twitter, Musk posted about some unknown song. He said he digitized it and turned it into an NFT, which he intended to put up for auction. The auction did start and the amount reached $1 million, but in the end the deal fell through. Musk decided not to sell his song.

NFT in Art

A unique example of encrypted NFT image is the image of Banksy, an artist whose name is unknown. His piece Morons was purchased by a blockchain company Injective Protocol for $95,000 from a gallery in New York. After that the company made a performance turning the image into an NFT and burning the original. Therefore, the Morons no longer physically exists, but it does exist as a non-fungible token.

Another example is the image Everydays: The First 5000 Days by Beeple. Artist Mike Winkelmann, known professionally as Beeple, became one of the first artists to sell his masterpieces as NFTs. He sold his first image as a tokenized asset in October 2020 for $66,000. In January 2023, this image was sold at an auction for $69 million. Also, this image was the first NFT in history to be sold at Christie’s.

NFTs on Social Media and in Memes

The most well-known example of NFTs on social media is the token associated with the first tweet of Jack Dorsey. Dorsey, who was one of the creators of Twitter and is now a popular crypto enthusiast, encrypted his first tweet. It was published on March 21, 2006 with the message: “just setting up my twttr”. The tweet was sold for $2.9 million Dorsey stated that he would donate the money to fight COVID-19.

Even memes were sold as NFTs. The Nyan Cat meme is a known example. The NFT contains a GIF file with an image of a flying cat leaving a rainbow trail. The creator of the meme Chris Torres developed an NFT dedicating it to the 10th anniversary of Nyan Cat’s creation. The token was sold at an auction for $590,000 and its buyer became the official owner of the Nyan Cat meme. Any images and GIFs published online are copies.

NFT is Simple. How Does it Work: an Easy Example

Let’s see the differences between a token and a NFT using a simple example. Let’s say that you lent $100 to your friend for a period of 30 days. In 30 days, your friend will return $100. It could be a different banknote or banknotes, but the value won’t change. That’s how ordinary tokens and cryptocurrencies work. If, for example, you give 1 BTC and then buy 1 BTC you will have exactly one Bitcoin on your account. Its value can be different only due to the current rate, but sometime later, it will become the same.

Now, let’s look at how NFTs work. Let’s assume that you gave your friend a unique trading card with Michael Jackson’s autograph, which he signed with a feather pen. He will not be able to give you back another card, because that will be an entirely different asset. A signature may be distorted a bit or there could be other differences. One way or the other, your card is unique and there cannot be another one that is absolutely identical to it.

NFTs work in the same way. There cannot be two identical NFTs, even if they are of the same value with the token that you gave. The value of each token will also be calculated individually. The token that you gave can become more expensive tomorrow and the token that you got could lose its value the next day. Or vice versa. Be that as it may, the value of each NFT is determined individually.

NFT Token vs. Ordinary Token: Comparison

For convenience, we have drawn up a table with a short comparison of ordinary tokens and NFTs. Let’s see how they are different.

Token	NFT
Interchangeable. If you exchange one token for the other, nothing will change	Non-interchangeable. If you exchange one token for the other, you will have an entirely different asset, even if it has a similar value
Can be split to two and more parts	Cannot be split
Can contain the same information	Contains different information. Each NFT token is unique
The value is determined for all tokens. Tokens of the same type have the same price. The price changes for all tokens simultaneously	Each NFT has its own price depending on the information it carries. The price of an NFT is calculated for each token separately
Used for payment for goods or services on the platforms to which they are linked	Thanks to its uniqueness, NFTs can be used to verify the ownership rights to unique items, for example collectibles

NFT statistics

The first NFT was created in 2017 against the background of the first cryptocurrency boom. Ethereum smart contract technology was used for its creation. Monitoring of such tokens is performed by the Nonfungible service.

As of 2024, the service provided the following statistics:

Number of NFT sales: 10,463/604
Sales volume: $9,487,481,085.63
Average price of 1 NFT: $906.71
Number of active market wallets: 738,909
Number of primary sales of tokens: 6,222,977 NFTs
Number of secondary sales of tokens: 4,240,627 NFTs

Latest statistics and the most expensive NFTs in history

The most expensive NFT of all time is NFTCrypto Punks. The value of the transaction amounted to 124,457 Ethereum crypto coins or $532 million. The record-setting transaction took place on October 27, 2023.

Let’s also see the most expensive NFT projects. As a basis of evaluation, we will use the volume of transactions that were performed with non-fungible tokens of different projects in all time. As of 2023.

The Top 5 projects, according to Nonfungible, include:

Crypto Punks – $1,543,953,985
Art Blocks – $1,170,352,032
Bored Ape Yacht Club – $1,094,001,790
Meebits – $306,523,720
SuperRare – $179,932,328

NFT statistics by sales volumes

Basic types of NFTs

You already know that NFTs can be of all sorts and that you can literally encrypt anything in them for a popular meme to a masterpiece worth tens of millions of dollars. Tokens are differentiated by two basic criteria. Let’s take a closer look at them.

Changeability

For example, they are classified by changeability. In this case, there are three types of NFTs:

Non-changeable (ERC-721 standard). There is an individual smart contract for these tokens. It is applied for items, of which there is only one copy, and they cannot be replaced with anything. For example, Beeple’s Everydays: The First 5000 Days cannot be replaced with anything. There is only one original copy of it. Learn what NFT smart contracts are in our guide.
Partially changeable (ERC-1155 standard). These tokens can be issued in several copies but executed in one smart contract. For example, 400 NFTs were sold as the album of Grimes. If two owners exchange these albums, nothing will change for them.
Composable (ERC-988 standard). These tokens imply a share of ownership of anything. For example, you can turn a property into a token. Imagine an apartment that has three owners. Each of them gets a share of the token carrying information about the property and the share in this apartment.

Each of these types of tokens are widely used in many areas. We will discuss these areas below.

Main Areas of Use

There are five basic areas of use of non-fungible tokens, including:

Gambling – 32%. In gambling, usually chips are encrypted in NFTs, which can then be exchanged by gamblers for their win. Or these could be special rewards for participation in special offers, prize draws, tournaments, contests. One type of such games is Tap Games.These games provide users with engaging gameplay experiences allowing players to earn crypto assets as they play.
Gaming – 13%. For gamers, unique access keys to the account in a game are often encrypted in NTFs. Also different achievements, titles, etc. can be turned into non-fungible tokens, such as HMSTR.
Luxury items – 7%. With NFTs, you can buy luxury items or a share in them. For example, these can be jewelry or precious stones. Often, such NFTs can be exchanged for real objects. For example, Icecap offers NFTs associated with diamonds.
Art – 6%. These NFTs allow you to become an owner of different objects of art or a share in them. These could be different items, such as paintings, sculptures, etc.
Collectibles – 2%. These NFTs are associated with collectibles. For example, they are widely used for encrypting trading cards, including with autographs of celebrities – musicians, athletes, etc.

Other types of NFTs account for 40%. For example, they can be used to establish a share in property or business (NFTs are used to encrypt stocks, other securities); unique domain names and many other things can be encrypted in such tokens.

NFT use in different areas
Gambling	32%
Gaming	13%
Luxury items	7%
Art	6%
Collectibles	2%
Other	40%

How to invest in NFT: Step-by-step guide

Investing in NFTs is becoming increasingly popular, as these digital assets can serve as alternative investment vehicles, similar to property, luxury items, or rare collectibles. The key difference is that you won’t physically own an item — instead, your ownership is recorded on the blockchain via a token. For example, a tokenized diamond from Icecap won’t sit in your jewelry box, but you will hold a digital certificate of ownership.

Understand the investment potential

NFTs can appreciate in value over time. Collections like CryptoPunks — which are tokenized collectible cards — have demonstrated how purely digital items can achieve massive valuations, with individual tokens selling for over $500 million. Even though you aren’t buying physical assets, NFTs can represent valuable investment opportunities.

Know how profits are made

You can profit from NFTs primarily through resale. The basic strategy is to sell your NFT at a higher price than you paid. This can happen either:

over time (Buy & Hold), waiting for its value to increase, or
quickly, if you find a buyer willing to pay more right away.

Choose a marketplace

Unlike regular cryptocurrencies, NFTs are traded on specialized marketplaces, not standard crypto exchanges.

Set up an account

Fund your account

Deposit cryptocurrency (typically ETH or other supported coins) into your marketplace wallet to be able to buy NFTs and pay transaction fees.

Buy and trade NFTs

Once your account is funded, you can start browsing, purchasing, and reselling NFTs. Successful trading depends on selecting the right assets and market timing.

Marketplaces for buying NFTs

In the 4 years of existence of non-fungible tokens, many marketplaces were created, where you can buy or sell tokens. Some organizations even launch their own platforms. For example, the National Basketball Association (NBA) has launched an official platform, where you can buy NFTs associated with videos or GIFs with an image of different historical moments.

We have prepared a list of Top 3 universal marketplaces, where you can buy or sell NFTs. See our list below.

Blur

Blur is a professional NFT marketplace designed for experienced traders and collectors. It offers fast transactions, advanced analytics, and efficient trading tools across multiple collections. Blur focuses on maximizing liquidity and supports bulk buying and selling of NFTs. You can trade NFTs here using Ethereum. The platform is popular among users who are looking for deeper market insights and faster execution compared to traditional marketplaces.

Blur

Rarible

NFT Rarible exchange offers a large choice of tokens, including objects of art, music, photos, domain name and many other things. Any person who opens an account on the platform can be a buyer and a seller. For example, Lindsay Lohan was a seller of an NFT token on Rarible. The exchange is growing actively. In January 2023, held a Series A investment round, raising $14.2 million. The list of investors included such reputable funds as Venrock Capital, CoinFund and 01 Advisors.

Rarible Marketplace

OpenSea

OpenSea is the largest NFT marketplace in the world. You can trade any type of NFTs here, including tokens associated with luxury items or property. OpenSea works with three blockchains: Ethereum, Polygon and Klaytn. NFT can be created on each of them, while the tokens from each of these blockchains are sold at the marketplace.

OpenSea Marketplace

Crypto exchanges where you can buy NFT

In addition to dedicated NFT marketplaces, many major crypto exchanges now offer built-in NFT marketplaces or trading sections. This makes it easy for users to buy, sell, and trade NFTs without having to move funds to an external platform. Using a crypto exchange can be a convenient option, especially for beginners or those who already have an exchange account. Below is a list of popular crypto exchanges where NFTs are available for purchase.

Best crypto exchanges that offer NFT trading
	Coinbase	Cryptohopper	OKX	Crypto.com	Kraken
Foundation year	2012	2018	2017	2016	2011
NFT
Coins Supported	249	1000	329	250	278
Demo account
Min. Deposit, $	10		10	1	10
Regulation				Malta Financial Services Authority
TU overall score	8.46	7.08	8.44	7.24	8.7
Open an account	Go to broker Your capital is at risk.	Go to broker Your capital is at risk.	Go to broker Your capital is at risk.	Go to broker Your capital is at risk.	Go to broker Your capital is at risk.

Smart tips for navigating the NFT market

As someone who has observed the evolution of blockchain-based assets closely, my advice to those exploring NFTs is simple: don't let the hype cloud your judgment. Instead of chasing trends or relying on viral momentum, focus on understanding the long-term value proposition of any NFT project you consider. Evaluate its utility, the credibility of the creators, and whether it contributes meaningfully to the broader digital economy. In this rapidly changing space, thoughtful participation grounded in research will always outperform impulsive speculation.

Conclusion

NFT tokens have fundamentally reshaped our understanding of digital ownership, offering a secure and transparent way to buy, sell, and showcase unique assets through blockchain technology. Whether it's digital art collections or rare in-game items, NFTs empower individuals to claim verifiable ownership of digital goods like never before. This new asset class may still face debates about its value and long-term utility, but its influence on art, gaming, and investment sectors is undeniable. Ultimately, NFTs are more than just a trend—they represent a powerful shift in how value is created and recognized in the digital world.

FAQs

What factors influence the value of an NFT token?

The value of an NFT token is influenced by the uniqueness and type of information it contains, such as whether it is a digital artwork, music, video, or collectible. Other factors include the rarity of the token, demand in the market, perceived authenticity, and its significance in cultural or digital history.

How does blockchain technology ensure the security and authenticity of NFT tokens?

Blockchain technology records each NFT’s ownership and metadata in a decentralized ledger that cannot be altered. This ensures that each token is traceable, tamper-proof, and its authenticity can be independently verified, protecting against forgery or duplication.

What are common risks and challenges associated with investing in NFT tokens?

Investing in NFT tokens involves risks such as price volatility, lack of liquidity, potential for loss if demand falls, and challenges in determining the long-term value of digital assets. Furthermore, the absence of physical ownership and reliance on digital platforms can pose additional uncertainties.

Can NFTs be used for purposes beyond art, gaming, and collectibles?

Yes, NFTs can be applied in diverse areas beyond art, gaming, and collectibles. They are used to represent ownership in property, luxury items, unique domain names, business shares, and even for encrypting stocks or securities, showcasing the versatility of the technology.

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Vuk stands at the forefront of financial journalism, blending over six years of crypto investing experience with profound insights gained from navigating two bull/bear cycles. A dedicated content writer, Vuk has contributed to a myriad of publications and projects.

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Dan Blystone began his trading career in 1998 as an arbitrage clerk on the floor of the Chicago Mercantile Exchange (CME). He later traded bond and Eurex futures at proprietary firms such as Altea Trading, gaining valuable experience in high-frequency trading and risk management.

Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data.

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