What are NFTs used for?

A conference sells 2,000 passes as NFTs. At the door, your wallet app signs a short message, and a program checks that the signing address holds one of those passes. Nobody asks for your name.

That pattern sits behind most NFT uses: a token that proves you hold one specific thing. The lesson on what an NFT is covers the token itself.

Digital art and collectibles

The best-known use is art. An artist creates a work as a token, and anyone can see which address created it and every address that has held it since.

Collections are the other large group: thousands of tokens built from the same set of traits, often used as profile pictures. Digital trading cards and sports clips follow the same model, with a fixed number of each card.

That record matters for digital art. If the artist publishes their address, buyers can tell the original from a copy made by someone else.

The token does not stop copies of the image, and its price rests entirely on what other collectors will pay.

Tickets, passes and memberships

A ticket fits the model well, since each seat or entry is one specific item. The organizer can see which tokens were used, and you can send a ticket to a friend from your wallet.

Memberships work the same way. Holding the token opens a private chat or a members' discount, and selling the token passes the membership to the buyer. This is called token gating.

Some events also hand out free attendance badges as NFTs, a lasting record that you were there.

Worked example: a ticket with resale rules

A smart contract can carry rules that a paper ticket cannot. Say an organizer writes these into a ticket contract. The numbers are illustrative.

1. Face value is 100 USDC, a stablecoin worth about one dollar.
2. Resale is allowed up to 150% of face value, so 150 USDC at most.
3. The organizer takes 10% of every resale.

You buy a ticket for 100 USDC and later resell it for the maximum, 150 USDC. The organizer receives 10% × 150 = 15 USDC. You keep 150 minus 15 = 135 USDC, 35 USDC more than you paid.

These rules hold only because the contract refuses transfers that skip them. Ordinary NFTs on open marketplaces have no such lock, so a creator's share of resales there depends on the marketplace choosing to pay it.

Game items, names and financial positions

In games, a sword or a plot of virtual land can be an NFT that you keep in your own wallet and sell to another player.

If the game closes, the token survives. Its use does not, because only the game's software gives the sword meaning.

Blockchain names are NFTs too. A name such as alice.eth points to a wallet address, so people can send coins to a word instead of a long address. Selling the name gives the buyer control of where it points.

Some decentralized exchanges give you an NFT as the receipt when you add tokens to a trading pool, because each position has its own settings, such as a price range. The lesson on automated market makers explains those pools.

Tokens can also stand for things off the chain, such as a watch in a vault. Then the token is only as good as the legal claim behind it and the company holding the item.

If the vault operator fails or disappears, the token alone cannot fetch the watch. Getting it back becomes a legal matter, settled off the chain.

A short history

The idea is older than the name. In the early 2010s, projects on Bitcoin marked small amounts of bitcoin to stand for other assets, an approach called colored coins.

In 2017, collectible projects on Ethereum showed what unique tokens could do. One of them, CryptoKitties, a game of breeding digital cats, drew enough traffic to slow the network. The ERC-721 standard was finalized in 2018.

Trading in NFTs grew very fast in 2021 and fell steeply in 2022. In 2023, a method called inscriptions took off, bringing NFT-like items to Bitcoin itself.

Uses where holding the token does something, such as getting you through a door, do not depend on resale prices. If you are weighing a purchase, the lesson on how buying an NFT works covers the steps and the traps.