NFTs from A to Z: a simple explanation for laymen

A few years ago NFTs were everywhere and some sold for millions. Many people still do not exactly know what it is and why anyone would pay for an image that anyone can download. Let us explain it from the basics, simply and without jargon.

What an NFT is

NFT stands for non-fungible token. It is a unique digital record of ownership, written on a blockchain (the public ledger you know from cryptocurrencies, more in the article cryptocurrencies from A to Z).

Put simply: an NFT is something like a digital certificate or receipt that says “this particular digital item belongs to this owner”.

Fungible versus non-fungible

This is the heart of the matter. You understand the difference with money:

• Fungible. One euro is the same as any other euro, you can exchange them and nothing changes. The same goes for one bitcoin for another.
• Non-fungible. It is unique and cannot simply be swapped for another. Like a signed original of a painting versus its copy, or a collector’s stamp with a specific number.

An NFT is precisely the latter: each piece is unique and has its registered owner.

How an NFT works

An NFT lives on a blockchain (most often Ethereum). It is a token that points to a specific item (an image, a video, music, an in-game item), and the blockchain records who this token belongs to. When you sell the NFT, the change of owner is written into the same public ledger, so the ownership history is traceable.

What an NFT actually IS NOT

This is the most common misunderstanding and it is worth emphasizing:

• You are not buying copyright. Owning an NFT usually does not mean you have rights to the work. The creator usually keeps them.
• You are not buying the file itself. Anyone can view and download the image. You own a record on the blockchain, not exclusive access to the image.
• In other words, you are buying a confirmation of ownership of a specific token, not a monopoly on the content. That is precisely why there is so much dispute about the value of NFTs.

What NFTs are used for

• Digital art and collectibles (for example profile pictures from well-known collections).
• In-game items (skins, characters, equipment).
• Music and content for fans.
• Tickets and memberships, where the NFT serves as a hard-to-forge ticket or pass.
• Certificates and domain names.

Some uses (tickets, memberships, certificates) make practical sense, but most of the attention went to speculative collectible images.

How they are bought

NFTs are bought and sold on marketplaces, such as OpenSea. You need:

• A crypto wallet (for example MetaMask).
• A cryptocurrency to pay (most often Ethereum).
• You also have to count on transaction fees (gas).

Creating a new NFT is called minting.

Value and price: be careful

The price of an NFT is driven mainly by scarcity, community, hype and speculation, not by some intrinsic value. That means enormous volatility. After the wave of enthusiasm around 2021 and 2022, the vast majority of NFTs lost value and today are practically worthless. Treat it as a highly risky speculation, not a sure investment.

Risks and scams

A lot of money has been and still is lost in this area:

• Plagiarism. Scammers steal someone else’s work and mint NFTs from it that they have no right to sell.
• Phishing and wallet draining. A fraudulent link or a malicious contract can empty your whole wallet. This relates to the articles social engineering and AI scams and fraudulent messages.
• Rug pulls and pump and dump. The creators artificially inflate the price and disappear, or abandon the project.
• Lost content (link rot). The image itself is often stored off the blockchain, on an ordinary server. When the server stops working, the NFT points to nothing.
• Irreversibility and no protection. Nobody returns a sent transaction and there is no one to turn to.

The same golden rule applies as with cryptocurrencies: a guaranteed or quick profit is a sign of a scam.

Practical tips for a layman

• Know what you are buying. A record of ownership of a token, not copyright or an exclusive image.
• Protect your wallet. Do not sign unknown contracts, do not click suspicious links, use two-factor authentication.
• Risk only what you can afford to lose. Most NFTs do not hold their value.
• Do not fall for hype. Under pressure of “buy now or you will miss out”, slow down and verify.

Conclusion

An NFT is a unique record of ownership on a blockchain, a kind of digital certificate to a specific item. It is important to know that you usually do not buy copyright or an exclusive file, only a confirmation of ownership of the token. Some uses (tickets, memberships) are practical, but the world of collectible NFTs is risky, full of speculation and scams. If you enter it, do so sensibly and only with money you can bear to lose.

Need advice on securing accounts and a wallet, or protecting yourself from scams? Get in touch, we will be happy to help.

This article is part of our Software and system overview.