An NFT is a unit of data stored on a digital ledger, called a blockchain, which can be sold and traded. The NFT can be associated with a particular digital or physical asset (such as a file or a physical object) and a license to use the asset for a specified purpose. An NFT (and the associated license to use, copy or display the underlying asset) can be traded and sold on digital markets. The extralegal nature of NFT trading usually results in an informal exchange of ownership over the asset that has no legal basis for enforcement, often conferring little more than use as a status symbol.
NFTs function like cryptographic tokens, but, unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs are not mutually interchangeable, hence not fungible. While all bitcoins are equal, each NFT may represent a different underlying asset and thus may have a different value. NFTs are created when blockchains string records of cryptographic hash, a set of characters identifying a set of data, onto previous records therefore creating a chain of identifiable data blocks.This cryptographic transaction process ensures the authentication of each digital file by providing a digital signature that is used to track NFT ownership.However, data links that point to details such as where the art is stored can be affected by link rot.
The unique identity and ownership of an NFT is verifiable via the blockchain ledger. Ownership of the NFT is often associated with a license to use the underlying digital asset, but generally does not confer copyright to the buyer. Some agreements only grant a license for personal, non-commercial use, while other licenses also allow commercial use of the underlying digital asset.