How an NFT Works: Understanding the Non-Fungible Token

What Differentiates an NFT from a Common Digital Asset

A non-fungible token is fundamentally different from traditional digital assets because each one has a unique and irreplaceable identity. While a fiat currency ( like the dollar or euro ) can be exchanged for another equivalent unit maintaining the same value, NFTs follow the opposite logic - each unit has its own characteristics and singular value.

To understand better: if you have a dollar bill, it is completely interchangeable with any other dollar bill. An NFT, on the other hand, functions as a unique digital certificate, similar to an original painting by a famous artist versus a photocopy. Originality and uniqueness are what matter.

How NFTs Work in Practice

NFTs exist within a blockchain network, which acts as a public and immutable record. This technology functions like a digital notary, recording who owns each unique asset and ensuring authenticity through cryptographic verification.

Decentralized applications (DApps) use this infrastructure to create and manage collectible digital items. You can buy and sell these assets on globally connected open markets (marketplaces), but each transaction is permanently recorded on the blockchain.

The Technical Standards that Enable the Ecosystem

In order for NFTs to function in a standardized and interoperable manner, specific protocols have been developed. The ERC-721 was the pioneering standard on the Ethereum network, establishing the basic rules for how a non-fungible token should be created and traded.

Subsequently, ERC-1155 emerged, a more sophisticated version that allows a single smart contract to manage both fungible and non-fungible assets simultaneously. This standardization enables an NFT created in one application to be transferred and used in another without the need for complex conversion.

Real Applications and Growth Potential

The functioning of NFTs allows their use in multiple industries. Video games use NFTs to represent rare and collectible items that will actually belong to the player. Digital artists sell works as NFTs, proving originality and authorship. Intellectual property certificates, licenses, and digital identity documents also begin to explore this technology.

An emerging possibility is fractional ownership - you could own a small percentage of a valuable asset through multiple tokens. Storing ownership records on the blockchain increases data integrity and reduces fraud, especially in international transactions.

Why NFTs Matter to the Digital Economy

The transfer of assets without intermediaries (trustless transactions) simplifies processes that traditionally require third parties. This reduces costs, accelerates operations, and democratizes access to global markets. NFTs establish the foundations for a new digital economy where ownership of unique assets can be easily verified, transferred, and monetized without relying on centralized institutions.