What an NFT Is: What You Actually Buy When You Buy One

There is one question almost nobody answers precisely: when you buy an NFT, what exactly comes under your control? Not the image. And, with rare exceptions, not the right to exploit that image either. What you acquire is a row in a smart contract's table saying that address X controls identifier number Y within that collection. Everything else — the file, the licence, the community, the status — is a layer built on top of that very small technical fact.

The distinction is not pedantry. It determines what happens if the image server goes offline, whether you can print the artwork on a T-shirt and sell it, and whether the creator earns anything when you resell. Let us take it apart, without nostalgia for 2021 and without the cheap mockery that followed.

What an NFT is technically

An NFT is a non-fungible token: each unit is distinct and not interchangeable with another of the same class. On Ethereum, two standards define them.

ERC-721 (EIP-721) is the original. A contract maintains a mapping from tokenId to owner address, with functions to transfer, approve a third party and query who owns what. Each tokenId is unique within that contract, and its full identity is the pair contract address + tokenId. Two different collections can each have a token number 1 and they have nothing to do with each other.

ERC-1155 (EIP-1155) is a multi-token standard: a single contract manages several identifiers, and each one can have one copy or many. It works for one-of-a-kind pieces and for "5,000 editions of this item" alike, and it supports batch transfers, which cuts gas costs sharply when moving several at once.

The function that matters most here is called tokenURI in ERC-721 (or uri in ERC-1155). It returns a string. That string points to a JSON file with the metadata — name, description, attributes — and inside that JSON there is another field, image, pointing at the file itself. Two levels of indirection between what is on-chain and what you see on screen. That is where almost all of an NFT's structural risk lives.

Where the file lives (and why it matters so much)

The centralised server case is the most common in collections launched in a hurry, and also the most fragile, because it fails in two ways. The first is link rot: the token remains on-chain, intact and transferable, pointing at an address that returns nothing. The second is worse: whoever controls that server can change the image without touching the chain. The ownership record is immutable; what it points to is not.

Token ownership versus copyright

These are two separate legal planes, and confusing them is the most expensive mistake made in this market. Transferring an NFT is a registry movement on a blockchain. Assigning the exploitation rights in a creative work requires, in most legal systems, a specific act of assignment with its own instrument and its own defined scope. The token changing hands assigns nothing over the work by itself.

In practice at least four models coexist:

• No published licence. The majority case. The buyer holds the token and has no documented right over the image. All they can do is whatever ordinary fair or lawful use allows.
• Personal-use licence. You may display the work and use it as an avatar, but not exploit it commercially.
• Limited commercial licence. Commercial exploitation permitted up to an annual revenue cap.
• Public domain or open licence. Some collections have released their work under CC0, which means anyone can use it whether or not they hold the token.

Before buying, look for the licence document. If none exists, assume the first scenario.

The royalty problem

A royalty is the percentage a creator collects on each resale. Here is the fact that almost never gets explained: the ERC-721 standard contains no mechanism for collecting them. A token transfer is a token transfer; the contract does not know whether payment occurred, or how much, and it cannot withhold a slice.

ERC-2981 did not fix this. All it does is standardise a field where the contract declares who should be paid and how much. The party that decides whether to actually pay is the marketplace executing the sale. For years everyone honoured that declaration because it was the sector's social norm. When platforms appeared in 2022 competing for volume by making royalties optional — letting the buyer choose the percentage, zero included — the rest had to follow or lose liquidity, and creator royalty income collapsed.

The only technical way to enforce them is to restrict, in the contract itself, which marketplaces may operate, and that turns the token into something with limited transferability, which in turn reduces its liquidity. There is no elegant solution: it is a trade-off between what the creator earns and how freely the piece circulates.

Worked example: what happens when you buy a 0.5 ETH NFT

You buy a piece listed at 0.5 ETH. With ETH at $2,505, the August 2026 price, that is $1,252.50. Assume a marketplace charging 2.5 % and a declared royalty of 5 %.

On top of that comes gas, paid by the buyer. A marketplace purchase consumes on the order of 250,000 gas units. At 0.151 gwei, Ethereum's actual level as of August 2026 according to the Etherscan gas tracker, that is 0.00003775 ETH, or about $0.09. To gauge how much the context has shifted: the same transaction at 100 gwei, an ordinary level in 2021, would cost 0.025 ETH — roughly $62.63 at today's ETH price. Operating costs have collapsed; the detail is in the gas fees guide.

Now the part almost nobody calculates. If you want to resell tomorrow and bear the same 7.5 % of deductions, you receive 92.5 % of the sale price. To recover your 0.5 ETH you need to sell at 0.5405 ETH, 8.1 % above what you paid. And if the marketplace you sell on ignores the royalty, the seller keeps 0.4875 ETH instead of 0.4625: that difference comes out of the creator's pocket, not yours.

The market's real cycle, with figures

The right reading of those numbers is neither "the market is dead" nor "the market is back". It is more interesting than either: the number of transactions has recovered strongly and the dollar volume has not. The third quarter of 2025 recorded 18.1 million sales, a count not seen since 2022, moving 1.6 billion dollars. Divide and the average ticket is about 88 dollars. At the 2021 peak, with vastly fewer trades, 24.9 billion changed hands. Average NFTs per wallet went from 4.2 to 8.4 over the same period: more people holding more pieces, each one worth far less.

On 2026 it is worth being explicit: there is no verified volume figure available for this year. Treat any number circulating without a primary source as unverified. What is verifiable is the trend described through the third quarter of 2025.

Which use cases survived

Outside profile-picture art, the cases still standing share one trait: verifiable uniqueness solves a real problem, and the token is not bought in the hope of reselling it higher.

• Event tickets. A ticket is a unique access right, transferable under conditions and forgeable on paper. It fits well, and it lets the organiser see and cap resale.
• Credentials and certifications. Diplomas, licences, professional accreditations. These are usually issued as non-transferable tokens, precisely so that no market forms.
• Domain names. ENS names and their equivalents are NFTs; holding the token is controlling the name.
• Asset tokenisation. Representing a specific, identifiable share in an asset, backed by an off-chain legal contract. Here the NFT is a record, not the asset. Some DeFi protocols even accept them as collateral, though with severe valuation haircuts for illiquidity.

In all of these the hard work is not in the token, it is in the legal and operational framework wrapped around it. The smart contract merely records the state.

The concrete risks

• Non-existent liquidity. A "floor price" is what the cheapest seller is asking, not what anyone will pay. Look at the best firm bid instead: on inactive collections it can be 80 % lower, or simply absent.
• Wash trading. Buying and selling between your own wallets inflates volume and average price without any demand behind it. It is cheap on low-gas chains and it contaminates every volume-based ranking.
• Theft by malicious signature. Nobody needs your seed phrase. It is enough for you to sign a setApprovalForAll on a site imitating a marketplace: that signature authorises an external contract to move your whole collection whenever it suits.
• Mutable metadata. If the URI points at a server the issuer controls, the piece you bought may not be the piece you see a year from now.
• Poisoned airdrops. Tokens that appear in your wallet unprompted, where interacting with them triggers the malicious approval.

The broader context for these losses comes from Chainalysis in its January 2026 report: during 2025, 713 million dollars were stolen from personal wallets across 158,000 incidents, with more than 80,000 unique victims, and the average scam payment rose from 782 to 2,764 dollars, an increase of 253 %. Impersonation scams grew 1,400 % year on year. The full picture is in the guide to the most common crypto scams.

What to check before you buy

• Read the tokenURI on a block explorer and find out whether the file sits on-chain, on IPFS, on Arweave or on a private server.
• Look for the collection's licence document. If you cannot find one, assume you acquire no rights over the artwork.
• Verify the contract address from the project's official source, not a link on social media. Fake collections are visually identical.
• Check the best firm bid, not the floor price, and count how many genuine sales happened in the past month.
• Before signing, read what the wallet is actually asking for: a purchase does not require unlimited permission over an entire collection.
• Periodically revoke approvals granted to marketplaces and contracts you no longer use.
• Keep valuable pieces in a wallet separate from the one you use for minting and experimenting.

The honest conclusion is that an NFT is a useful technical primitive — a verifiable ownership record for something unique — that for two years was used almost exclusively to speculate on pictures. The primitive is still useful. The speculative phase left behind a trail of illiquid pieces whose metadata, in many cases, no longer resolves to anything at all.

Frequently asked questions

Sources and references

1. EIP-721: Non-Fungible Token Standard
2. EIP-1155: Multi Token Standard
3. EIP-2981: NFT Royalty Standard
4. EIP-6551: Non-fungible Token Bound Accounts
5. IPFS Docs — Persistence, permanence and pinning
6. Chainalysis — Crypto scams 2026
7. Etherscan — Gas Tracker
8. DappRadar — industry reports and NFT market data

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