What are NFTs, and How Do They Work?

NFTs are nonfungible tokens. Fungibility refers to assets of the same kind that can be traded interchangeably among one another. Bitcoins, for example, are fungible, users can trade one Bitcoin for another, and it will be the exact same asset.

But because NFTs are nonfungible, each token is unique and cannot be replicated. Because of this distinct characteristic, NFTs are represented as tokens on the blockchain representing digital ownership. This record of ownership cannot be changed since its existence is time-stamped on the blockchain.

“NFTs are pieces of information on a blockchain that’s represented in an interactive format with visual representation,” says Nick Donaraski, CEO of blockchain technology, ORE System. For ownership rights, if you purchase an NFT early, that asset is limited and only available through you being the owner. This scarcity, Donaraski says, is what allows for the value of the NFT to grow over time.