Non-Fungible Tokens (NFTs)

"Non-fungible tokens (NFTs) have become popular as unique and non-interchangeable units of data that signify ownership of associated digital items, such as images, music, or videos. Token “ownership” is recorded and tracked on a blockchain (a digital database that records data on a decentralized network of computers without the use of a central authority). In the future, supporters believe NFTs will be used as digital representations of physical items, such as a deed to a house or title to a car. NFTs are commonly used to record and represent ownership of an item, verify authenticity, and enable exchange. However, they do not necessarily reflect the legal ownership of an asset or grant copyright to a digital or physical item. NFT owners purchase only the right to the NFT’s blockchain metadata or “token,” not the underlying asset, unless otherwise specified in external contracts or terms and conditions.

NFTs share many similarities with cryptocurrencies, and they are commonly bought and traded using cryptocurrency. Both NFTs and cryptocurrencies are built and tracked on blockchains, and they share much of the same customer and community base. However, cryptocurrencies are fungible, meaning interchangeable, whereas NFTs are unique and therefore nonfungible. Most users create and buy NFTs on dedicated NFT marketplaces. For a typical NFT, it is created or “minted” on a blockchain, auctioned off or sold at a fixed price on an NFT marketplace, and “stored” in the buyer’s digital wallet. Smart contracts (self-executing contracts or lines of computer code on a blockchain) can mint NFTs or transfer them from one owner to another. In combination, blockchains and smart contracts are the backbone of the NFT ecosystem.

Estimates for the size of the NFT market range from around $17 billion to over $44 billion in annual sales. According to some market analytic companies, sales increased substantially in 2021 but have decreased in 2022. Some high-profile NFTs have sold for millions of dollars, while one study found that 1% of NFTs sell for over $1,594 and that roughly three-quarters of NFTs are sold for less than $15. The NFT market is similarly stratified and concentrated. The two largest marketplaces, OpenSea and LooksRare, account for nearly all monthly NFT trading volume. Additionally, one study found that the top 10% of NFT buyers and sellers make as many transactions as the remaining 90%. The latter statistic may reflect the prevalence of illicit trading practices..."
NFT