NFTs: What are they and how do non-fungible tokens work?

NFTs, short for Non-Fungible Tokens, are a revolutionary class of digital assets that are redefining ownership and authenticity in the virtual world. Unlike traditional cryptocurrencies, each NFT is unique and cannot be exchanged for another object of equivalent value. This non-fungible characteristic - precisely - has opened new frontiers in the representation and management of digital rights, both for intangible and tangible assets.

In 2025, the Non-Fungible Token (NFT) landscape has undergone a significant transformation compared to previous years. After the initial explosion between 2021 and 2022, characterized by record sales and enormous media attention, the NFT market has gone through a phase of consolidation and maturation. According to recent studies, the overall value of the NFT market reached $8.8 billion in December 2024, recording a 17.3% increase in just one week.

This growth has been fueled by a diversification of NFT applications, which have found space not only in digital art, but also in sectors such as fashion, music, gaming and even real estate.

But what are NFTs in concrete terms and how do they work, also from an investment perspective? Let’s try to put everything there is to know about non-fungible tokens in order.

What are NFTs? The meaning of non-fungible token

A Non-Fungible Token (NFT) is a special type of cryptographic token that represents a unique and non-interchangeable asset. As mentioned, unlike traditional cryptocurrencies such as Bitcoin or Ethereum, which are fungible and can be exchanged for each other in an equivalent way, each NFT has distinctive characteristics that make it unique.

The non-fungibility of NFTs means that each token has specific attributes that differentiate it from other tokens. These attributes can include metadata, digital properties, or links to specific content such as images, videos, or audio files. This uniqueness has made NFTs particularly suitable for representing digital assets such as artwork, collectibles, virtual real estate, and more.

The underlying technology of NFTs is blockchain, a decentralized and immutable digital ledger that ensures the transparency and security of transactions. Each NFT is recorded on a blockchain, which allows the ownership and provenance of the digital asset to be traced in a transparent and verifiable way. The most commonly used blockchains for creating and managing NFTs include Ethereum, Binance Smart Chain, and Flow.

A key aspect of NFTs is the ability to incorporate custom metadata and attributes. These can include author information, descriptions of the work, links to external content, and other features that add value and context to the digital asset. For example, an artist can attach a detailed description of their work, certificates of authenticity, or even exclusive content that is only accessible to the owner of the NFT.

Ownership of an NFT gives the holder specific rights to the associated digital asset. However, it is important to note that owning an NFT does not necessarily imply ownership of the copyright or reproduction rights to the work represented. The rights associated with an NFT depend on the terms established by the creator and can vary on a case-by-case basis. Therefore, it is essential for buyers to fully understand what rights are included with the purchase of an NFT.

NFTs: Here’s How They Work

NFTs function as digital certificates that attest to the ownership and uniqueness of a digital asset, based on a distributed record-keeping technology, the blockchain.

Creating an NFT (Minting)

The process of creating an NFT, known as minting, involves converting a digital file (such as an image, video, or song) into a token on the blockchain.
This process involves:

• choosing a blockchain: Ethereum is the most widely used network thanks to the ERC-721 standard, but Solana, Binance Smart Chain, and Polygon are also gaining popularity due to their efficiency and low costs;
• using a smart contract: NFTs are generated via smart contracts, programs running on a blockchain that define the ownership, transferability, and characteristics of the token;
• uploading the file and metadata: the file content can be stored on-chain (rarely due to high costs) or on decentralized storage solutions such as IPFS (InterPlanetary File System);
• paying gas fees: minting requires the payment of fees to validate the transaction on the blockchain.

After minting, the NFT becomes part of the creator’s digital wallet and can be traded or sold on dedicated marketplaces.

Buying and selling NFTs

NFTs can be bought or sold on specialized marketplaces such as OpenSea, Rarible, and Blur. The process includes:

• wallet link: marketplaces require a compatible wallet such as MetaMask or Trust Wallet to interact with NFTs;
• choose and buy: users can purchase NFTs through auctions or direct sales using cryptocurrencies;
• transaction confirmation: each purchase is recorded on the blockchain, guaranteeing unique ownership of the NFT.

Ownership and security of NFTs

The authenticity and ownership of an NFT is guaranteed by the blockchain, which records each transaction and makes it impossible to forge. However, there are risks such as wallet theft and rug pulls (fraudulent projects). The use of hardware wallets and attention to the details of the smart contract can mitigate these risks.

How to create an NFT

Let’s now try to explain in a simple way and in a few words how NFTs are created. First of all, you need to know that any type of digital asset can become an NFT: a photo, a video, a GIF, a song, an emoticon, etc.

There are essentially 3 steps to create an NFT:

• the actual creation of the non-fungible token;
• minting, i.e. the transformation of the file into an NFT;
• publication on a site, or marketplace, where NFTs can be seen, bought and sold.

Those who want to create an NFT must use a blockchain and have a digital wallet with cryptocurrency to finance the minting (the costs associated with the creation of NFTs are gas fees, fees for opening a wallet account and sales fees) and choose a platform on which to sell their work.

So what are NFTs for?

NFTs, or non-fungible tokens, are used in a variety of sectors, demonstrating their versatility and revolutionary potential. Here are some concrete examples of how NFTs are used.

• Art and collectibles: they represent unique digital works of art, such as "Everydays: The First 5000 Days" by Beeple, or personal memorabilia of celebrities such as William Shatner. They represent a certificate of authenticity and provenance, essential for preserving the value and history of the work.
• Digital Identity: NFTs are used as profile pictures on social media to express membership in a community or interest in a particular topic.
• Virtual Worlds and Metaverses: NFTs can represent ownership of virtual land, objects, or resources in worlds like Decentraland and The Sandbox, allowing users to own and trade parts of these digital universes.
• Music Industry: NFTs allow ownership of exclusive music tracks, albums, or audio content, with platforms like Royal and Sound enabling this use case.
• Gaming: NFTs represent in-game items, characters, or resources that have real-world value, such as games like Axie Infinity, Decentral Games, and Thetan Arena.
• Web Domains: NFTs can represent ownership of website domains through decentralized domain services like Ethereum Name Service (ENS).
• Event Tickets and Memberships: Provide exclusive access to communities or platforms.
• Philanthropy and Fundraising: Artists and organizations use NFTs to raise funds for charitable causes or personal projects.

Some examples of NFTs to understand

In 2025, the NFT market has changed profoundly compared to previous years. It is no longer just digital works of art sold at exorbitant prices, but digital assets with concrete uses in various sectors such as gaming, fashion, the metaverse and even virtual real estate. Here are some examples to understand.

Bored Ape Yacht Club (BAYC): From Collectible to Digital Status Symbol

• The Bored Ape Yacht Club (BAYC) remains one of the most iconic and relevant NFT projects. Launched in 2021, in 2025 it continues to be a prestigious brand in the Web3 world. The value of BAYC NFTs no longer depends solely on rarity, but on the exclusive benefits offered to owners, such as access to VIP events, collaborations with luxury brands, and commercial use rights on avatars. BAYC is also at the heart of the Otherside ecosystem, an interactive metaverse developed by the company Yuga Labs.

Nike .SWOOSH: Fashion and NFTs merge

• In the fashion industry, Nike was among the first companies to invest heavily in NFTs with the .SWOOSH platform. Through this initiative, users can purchase virtual sneaker NFTs, redeemable for exclusive physical versions or usable in metaverses and online games. In 2025, Nike expanded its program to allow users to customize their NFTs, increasing the interaction between digital and real.

Gaming NFTs: Illuvium and Star Atlas

• NFTs in the gaming industry are one of the fastest growing areas. Illuvium, a blockchain-based game with NFTs that can be used as creatures to train and fight, has attracted millions of players. Star Atlas, a space game based on Solana, allows players to own ships, planets, and space stations in the form of NFTs, creating a true digital economy.

Bitcoin Ordinals: NFTs on Bitcoin

• One of the most talked-about innovations of 2025 is the expansion of NFTs on the Bitcoin blockchain thanks to Ordinals, a protocol that allows images and data to be written directly into Bitcoin transactions. This has opened up new opportunities for artists and collectors, making Bitcoin a competitive network for digital art.

Virtual real estate: Decentraland and Otherside

• In the world of the metaverse, NFTs such as the virtual lands of Decentraland and Otherside have become true digital assets, with companies purchasing virtual spaces to create immersive experiences and digital showrooms. This sector continues to expand with multi-million dollar investments.

These examples demonstrate how NFTs are not just digital collectibles, but tools with concrete uses in various sectors.

How to invest in NFTs

But NFTs, like classical art - paintings, sculptures, paintings - can also be considered as investments. There are many sites on the market that allow you to exchange works of art. Among the most famous are NiftyGateway and OpenSea, but there are also many others.

Then there are more specialized marketplaces, such as NBA Top Shot, where you can buy video moments of the US basketball championship, or Valuables, to buy tweets. Without forgetting the fact that even historic auction houses, such as Christie’s, have opened up to this trend.

So how can you ride the trend and try to capitalize on this overwhelming success?

To purchase an NFT, a potential investor will need a digital wallet, cryptocurrencies, and a blockchain, usually Ethereum.

Before purchasing an NFT, it is important to consider several factors.

• Supply and demand, evaluating the availability of the NFT and the interest of the market.
• Creator credibility, investigating the notoriety of the artist or creator to understand what the basis of the value of the NFT is.
• NFT type, understanding whether the NFT is functional, artistic, gaming-related, or metaverse-related, as each category has different uses and potential returns.

NFTs can be an interesting investment opportunity, but it is essential to understand the market and the NFT you are looking at before investing.

Original article published on Money.it Italy. Original title: NFT, cosa sono e come funzionano i non-fungible token