Non-fungible token
A non-fungible token (NFT) is a unique digital identifier that is recorded on a blockchain and is used to certify ownership and authenticity. It cannot be copied, substituted, or subdivided.[1] The ownership of an NFT is recorded in the blockchain and can be transferred by the owner, allowing NFTs to be sold and traded. NFTs can be created by anybody and require few or no coding skills to create. NFTs 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.
"NFT" redirects here. For other uses, see NFT (disambiguation).
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.
NFT trading increased from US$82 million in 2020 to US$17 billion in 2021.[2] 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.[3] The NFT market has also been compared to an economic bubble or a Ponzi scheme.[4] At their peak, the three biggest NFT platforms were Ethereum, Solana, and Cardano.[5] In 2022, the NFT market collapsed; a May 2022 estimate was that the number of sales was down over 90% compared to 2021.[6] By September 2023, one report claimed that over 95% of NFT collections had zero monetary value.[7][8]
History
Early projects
The first known "NFT", Quantum,[25] 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".[26] This explicitly linked a non-fungible, tradable blockchain marker to a work of art, via on-chain metadata (enabled by Namecoin).[27]
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 (US$0.43 at the time of launch), were sold for a total of US$1.4 million.[28]
In 2016, Rare Pepes a "semi-fungible" NFT project centered around the Pepe the Frog meme involving 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).[29]
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[30] 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.[31] In December, a clipart based collection featuring images of rocks called EtherRock emerged.[32]
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 very first bona fide non-fungible token standard, known as ERC-721.[33] It used an early version of ERC-721 that differed from the formally published version of the standard in 2018.[34]
ERC-721: Non-Fungible Token Standard
While experiments around non-fungibility have existed on blockchains since as early as 2012 with Colored Coins on Bitcoin,[35] a community-driven paper called ERC-721: Non-Fungible Token Standard was published in 2018 under the initiative of civic hacker and lead author William Entriken[36] and is recognized as pioneering the foundation for NFTs and enabling the growth of the wider eco-system.[37] It introduced the formalization and defining of the term Non-Fungible Token "NFT" in blockchain nomenclature by establishing a standard for smart contracts known as "ERC-721" whose tokens would have unique attributes and ownership details, ensuring no two tokens are alike.[38] The creation of derivative standards followed from its influence on Ethereum (like ERC-1155 enabling semi-fungibility) and other blockchains.[39] Its versatility enabled the pioneering of numerous use cases, including digital artwork, deeds to physical items, real estate (including virtual), access passes, and game assets.[40] Ultimately, the emergence of ERC-721 is recognized for having fundamentally changed the landscape of digital verification, authentication, and ownership.[41]
Uses
Commonly associated files
NFTs have been used to exchange digital tokens that link to a digital file asset. Ownership of an NFT is often associated with a license to use such a linked digital asset but generally does not confer the 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.[54] This kind of decentralized intellectual copyright poses an alternative to established forms of safeguarding copyright controlled by state institutions and middlemen within the respective industry.[55]
Standards in blockchains
Several blockchains have added support for NFTs since Ethereum created its ERC-721 standard.[170][171]
ERC-721 is an "inheritable" smart contract standard, which means that developers can create contracts by copying from a reference implementation. ERC-721 provides core methods that allow tracking the owner of a unique identifier, as well as a way for the owner to transfer the asset to others.[170] Another standard, ERC-1155, offers "semi-fungibility" whereby a token represents a class of interchangeable assets.[172]
