DeFi and tokenization
NFTs and token standards
4 min
An NFT — non-fungible token — is a token that represents something unique. Where one bitcoin is interchangeable with any other (it is fungible), each NFT is distinct and not interchangeable one-for-one.
Fungible vs non-fungible
- Fungible: every unit is identical and interchangeable — like currency. On Ethereum these typically follow the ERC-20 standard.
- Non-fungible: each token is one of a kind, with its own identifier and properties.
The main NFT standards
- ERC-721: the original standard for unique, single tokens — each one entirely distinct.
- ERC-1155: a flexible standard that can manage many token types (both fungible and non-fungible) in one contract, useful for things like game items issued in editions.
What an NFT actually contains
A common misunderstanding: an NFT usually does not store the image or file itself on the blockchain. It stores a record of ownership and often a link to where the media lives. If that external storage disappears, the token can point to nothing. Ownership of an NFT also does not automatically grant copyright or any legal right unless that is separately specified.
Honest perspective
NFTs have real potential uses — verifiable ownership, tickets, credentials, in-game assets. They were also the centre of an intense speculative bubble in which many collections lost the vast majority of their value. Separate the technology (a token standard for uniqueness) from the hype (paying large sums for profile pictures). Treat NFTs as highly speculative and illiquid unless proven otherwise.
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