A non-fungible token (NFT) is a unique digital identifier that is recorded on a blockchain and is used to certify ownership and authenticity. They typically contain references to digital files such as artworks, photos, videos, and audio. Because NFTs are uniquely identifiable, they differ from cryptocurrencies (which are fungible, hence the name non-fungible token), and as a result they cannot be copied, substituted, or subdivided. Their ownership can be transferred by the owner, allowing NFTs to be sold and traded. Initially pitched in 2017 as a new class of investment asset, NFT trading increased from US$82 million in 2020 to US$17 billion in 2021. Its market was occasionally compared to an economic bubble or a Ponzi scheme. In 2022, the NFT market collapsed; a May 2022 estimate was that the number of sales was down over 90% compared to 2021. By September 2023 one report claimed that over 95% of NFT collections had zero monetary value. Proponents claim that NFTs provide a public certificate of authenticity or proof of ownership, but the legal rights conveyed by an NFT can be uncertain. The ownership of an NFT as defined by the blockchain has no inherent legal meaning and does not necessarily grant copyright, intellectual property rights, or other legal rights over its associated digital file. An NFT does not restrict the sharing or copying of its associated digital file and does not prevent the creation of NFTs that reference identical files. NFTs have been used as speculative investments and have drawn criticism for the energy cost and carbon footprint associated with some types of blockchain, as well as their use in art scams.
Characteristics An NFT is a data file, stored on a type of digital ledger called a blockchain, which can be sold and traded. The NFT can be associated with a particular asset – digital or physical – such as an image, art, music, or recording of a sports event. It may confer licensing rights to use the asset for a specified purpose. An NFT (and, if applicable, the associated license to use, copy, or display the underlying asset) can be traded and sold on digital markets. However, the extralegal nature of NFT trading usually results in an informal exchange of ownership over the asset that has no legal basis for enforcement, and so often confers little more than use as a status symbol. NFTs function like cryptographic tokens, but unlike cryptocurrencies, NFTs are not usually mutually interchangeable, so they are not fungible. A non-fungible token contains data links, for example which point to details about where the associated art is stored, that can be affected by link rot.
Copyright
An NFT solely represents a proof of ownership of a blockchain record and does not necessarily imply that the owner possesses intellectual property rights to the digital asset the NFT purports to represent. Someone may sell an NFT that represents their work, but the buyer will not necessarily receive copyright to that work, and the seller may not be prohibited from creating additional NFT copies of the same work. According to legal scholar Rebecca Tushnet, "In one sense, the purchaser acquires whatever the art world thinks they have acquired. They definitely do not own the copyright to the underlying work unless it is explicitly transferred." Certain NFT projects, such as Bored Apes, explicitly assign intellectual property rights of individual images to their respective owners. The NFT collection CryptoPunks was a project that initially prohibited owners of its NFTs from using the associated digital artwork for commercial use, but later allowed such use upon acquisition by the collection's parent company.
History
Early projects The first known NFT, Quantum, was created by Kevin McCoy and Anil Dash in May 2014. It consists 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 conferences at the New Museum in New York City. McCoy and Dash referred to the technology as "monetized graphics". This explicitly linked a non-fungible, tradable blockchain marker to a work of art, via on-chain metadata (enabled by Namecoin). In October 2015, 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 (US$0.43 at the time of launch) were sold for a total of US$1.4 million. In 2016, Rare Pepes, a "semi-fungible" NFT project centered around the Pepe the Frog meme, which involved a collective of artists contributing their works into a curated directory, emerged on Bitcoin through a protocol known as Counterparty, which had been created in 2014 and used to create other assets. In 2017, several NFT projects emerged on Ethereum that utilized a "fungible" token standard known as ERC-20. Curio Cards in May of that year is credited with being Ethereum's first art NFT project using the fungible standard and features artwork in the shape of a card among a variety of image types, including satirized corporate logos. The generative art project of 10,000 pixelated characters known as CryptoPunks emerged soon after in June and would later establish itself as one of the most commercially successful NFT projects. In December, a clipart based collection featuring images of rocks called EtherRock emerged. In November 2017, the widely acclaimed blockchain game on Ethereum known as CryptoKitties launched, and is credited with pioneering what is considered to be the first bona fide non-fungible token standard, known as ERC-721. It used an early version of ERC-721 that differed from the formally published version of the standard in 2018.
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