4. Non-Fungible Tokens (NFTs)
Every dollar bill in your wallet is interchangeable with every other dollar bill. Swap your $20 for someone else's $20, and you haven't gained or lost anything. That's fungibility. The tokens we covered in Section 3 work this way. Your 100 USDC equals anyone else's 100 USDC. No distinction. No preference.
Not everything works this way. Some assets derive their value precisely from being unique.
Your driver's license isn't interchangeable with someone else's. Neither is your house deed, your passport, or that concert ticket stub you kept from a show in 2019. Each of these items identifies something specific: a unique person, property, or experience. Trade one for another, and you've made a completely different deal.
NFTs bring this concept to digital assets. They create verifiable uniqueness in a medium where copying costs nothing. Before 2017, digital files couldn't be "originals" in any meaningful economic sense [1]. Right-click, save. The copy is identical to the source. No degradation. No loss of quality. No scarcity.
Blockchains changed the equation. Not by preventing copying, which remains trivially easy, but by creating permanent, tamper-proof records of ownership. The image can still be duplicated. The proof that you own the authentic, creator-issued version cannot.
This distinction created a $25 billion market at its 2021 peak [2]. Christie's auctioned a Beeple digital artwork for $69 million [3]. Bored Ape Yacht Club holders watched floor prices climb past $400,000 [4]. Ethereum Name Service registered over 2.8 million human-readable wallet addresses [5]. The speculation was real. So were the underlying use cases.
The crash that followed separated sustainable applications from pure hype. By 2024, the market stabilized around $10-15 billion in capitalization [6]. Profile picture projects with no utility beyond flipping mostly died. Digital identity, gaming assets, membership credentials, and art with genuine cultural significance survived. The technology proved itself. The valuations found reality.
Understanding NFTs requires examining both the concept and its implementations. Non-fungibility is the principle. Token standards define how developers implement that principle on specific blockchains. Different standards solve different problems, optimize for different constraints, and serve different use cases.
Each standard makes different trade-offs. ERC-721 optimizes for simplicity and ecosystem compatibility [7]. ERC-1155 optimizes for efficiency and multi-token management. Metaplex optimizes for cost and speed. Ordinals optimize for permanence and security at the expense of programmability.
No single approach wins universally. A fine art collection selling pieces for $100,000+ benefits from Ethereum's established collector base and deep liquidity. A mobile game distributing millions of items needs Solana's near-zero transaction costs. A digital artifact meant to exist for centuries might justify Bitcoin's unmatched security guarantees.
The next five sections examine each approach in detail: what problems it solves, how the technology works, what trade-offs it makes, and when to use it. By the end, you'll understand not just what NFTs are, but how to evaluate which implementation fits specific use cases.
What This Section Covers
References
[1] What is ERC-721? The Ethereum NFT Token Standard - https://decrypt.co/resources/erc-721-ethereum-nft-token-standard
[2] Total NFT Sales Hit $25B in 2021 - https://blockchain.news/news/total-nft-sales-hit-25b-in-2021
[3] Beeple NFT Sells for $69.3 Million at Christie's - https://www.artnews.com/art-news/market/beeple-makes-69-million-1234586424/
[4] Bored Ape Yacht Club Prices Crash to Two-Year Low, Down 88% From Peak - https://decrypt.co/147201/bored-ape-yacht-club-prices-crash-two-year-low-down-88-peak
[5] Ethereum Name Service Recorded Over 2.8M Domain Registrations in 2022 - https://www.coindesk.com/markets/2023/01/04/ethereum-name-service-recorded-over-28m-domain-registrations-in-2022
[6] How much is the NFT market worth? - https://coinledger.io/research/how-much-is-the-nft-market-worth
[7] ERC-721: Non-Fungible Token Standard - https://ethereum.org/developers/docs/standards/tokens/erc-721/
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