A non-fungible token (NFT) is a financial security consisting of digital data stored in a blockchain, a form of distributed ledger. The ownership of an NFT is recorded in the blockchain, and can be transferred by the owner, allowing NFTs to be sold and traded. NFTs can be created by anybody, and require few or no coding skills to create. NFTs typically contain references to digital files such as photos, videos, and audio. Because NFTs are uniquely identifiable assets, they differ from cryptocurrencies, which are fungible. The market value of an NFT is associated with the digital file it references.
NFT diagram; (Source: Own work CactiStaccingCrane, Photo/Hero Song, 29 Jul 2022)
NFT stands for non-fungible token. Non-fungible is an economic term that you could use to describe things like your furniture, a song file, or your computer. These things are not interchangeable for other items because they have unique properties. Fungible items, on the other hand, can be exchanged because their value defines them rather than their unique properties. For example, ETH or dollars are fungible because 1 ETH / $1 USD is exchangeable for another 1 ETH / $1 USD.
An NFT is a unit of data, stored on a type of 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 images, art, music, and sport highlights and may confer licensing rights to use the asset for a specified purpose. They let us tokenise things like art, collectibles, even real estate. They can only have one official owner at a time and they're secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.
NFT ownership diagram; (Source: Own work CactiStaccingCrane, Photo/Hero Song, 29 Jul 2022)
Ethereum was the first blockchain to support NFTs with its ERC-721 standard and most widely used. ERC-721 was the first standard for representing non-fungible digital assets on the Ethereum blockchain. ERC-721 is an inheritable Solidity smart contract standard; "inheritable" means that developers can create new ERC-721-compliant contracts by copying from a reference implementation. ERC-721 provides core methods that allow tracking the owner of a unique identifier, as well as a permissioned way for the owner to transfer the asset to others. As ERC-721 standardizes a function of safe transfer, permission for transfers may be initiated by: NFT owner, NFT approved address, an authorized operator of the current owner of an NFT.