NFTs 101

An NFT is a non-fungible token: an entry on a blockchain that is unique rather than interchangeable. One bitcoin is the same as any other bitcoin — that is fungibility. An NFT is deliberately not that. Each one is a distinct, numbered record with an owner.

Almost all of the confusion around them comes from a single question people skip: what, exactly, does that record point at, and who controls the thing on the other end?

What the token actually contains

Usually far less than people assume. A typical NFT stores an id, an owner address, and a link to “metadata” — a small file holding the name, the description and a URL for the image.

The artwork itself is very rarely on the blockchain. Storing a full-resolution image on-chain would cost an enormous amount in gas, so the image lives somewhere else and the token points to it. That pointer is the weak link:

• An ordinary web URL — the image is on somebody's server. If that server goes away or the file is replaced, your token now points at nothing, or at something else entirely. This has happened.
• Content-addressed storage — the link is a hash of the file, so it cannot be swapped for different content without breaking the link. Better, but the file still has to be hosted by somebody who keeps paying to host it.
• Fully on-chain — the image data is in the contract itself. Genuinely permanent, and rare, because it is expensive and only works for small or generated artwork.

“You own the NFT” is precise and narrow: you control a ledger entry. Whether that entry still resolves to a picture in ten years is a hosting question, not a blockchain one.

Ownership is not copyright

This is the most consequential misunderstanding in the whole subject, so it is worth stating flatly. Buying an NFT transfers the token. It does not, by default, transfer the copyright in the underlying work.

Copyright is governed by law, not by a ledger, and transferring it generally requires an explicit written assignment. Some projects grant buyers a licence — sometimes broad, sometimes narrow — and a few assign rights properly. Most grant nothing at all, and the buyer holds a numbered token pointing at an image whose author retains every right they started with.

The practical version: read what the project actually says you are getting, and assume it is only the token unless it says otherwise in writing.

Royalties, and why they stopped being reliable

Much of the early pitch to artists was automatic resale royalties — a percentage on every future sale, forever. The problem is that this was never enforced by the blockchain. A standard transfer does not know it was a sale, so royalties depended on marketplaces choosing to honour them.

When marketplaces began competing on fees, some made royalties optional and others dropped them. Creators discovered the payments were a convention rather than a guarantee. It is a clean example of a wider lesson: a promise is only as strong as the layer that enforces it, and a promise enforced by a marketplace can be withdrawn by a marketplace.

How people lose money here

Beyond prices simply falling, which they did severely after the 2021–22 boom, the specific failures are worth knowing:

• Signing a permission rather than a purchase. Marketplace listings work by granting a contract the right to move your tokens. A fake listing page asks for the same signature and takes them. See how to spot a crypto scam.
• Wash trading. Someone selling to themselves repeatedly to manufacture a price history. On a public ledger this is visible if you look, and most buyers do not.
• Buying illiquidity. A collection's “floor price” is the cheapest listing, not a price anyone paid. With few buyers, it describes what somebody hopes for rather than what you could get.

What the technology is actually good for

The speculative market collapsed, and it is easy to conclude the underlying idea was worthless. That is too quick. A unique, transferable, publicly verifiable record with a clear owner is a genuinely useful primitive — it is just that most of what was built on it in 2021 was not that.

The uses that have held up are unglamorous: event tickets that cannot be duplicated and can be checked by anyone; credentials and memberships that the holder controls rather than a platform; and on-chain provenance for digital work, where the point is the verifiable chain of custody rather than the resale value.

What they all share is that the token is doing a job other than being sold to the next person. That is the useful test to apply to any NFT you encounter.