NFTs — Beyond JPEGs: Standards, Marketplaces, and Tradeoffs

Non-fungible tokens (NFTs) exploded into mainstream attention as collectible digital assets, but they are more than pictures with provenance. NFTs are token records on blockchains that represent unique assets — digital or physical — and enable ownership, transfer, and composability.

This post walks through the fundamentals, important token standards, where NFTs are traded, common security issues, and the environmental and societal conversations around NFTs.

What is an NFT?

An NFT is a unique token recorded on a blockchain that represents ownership or proof-of-authenticity for an asset. Unlike cryptocurrencies (e.g., ETH) which are fungible, each NFT has distinguishing data or metadata that makes it one-of-a-kind.

• On-chain vs off-chain: Some NFTs store the asset or metadata directly on-chain (costly), while many store metadata off-chain (IPFS, centralized CDN) and point to it via a URL in the token metadata.
• Provenance: The blockchain records a permanent history of ownership and transfers, giving provenance to the asset.

Common token standards

• ERC-721 (Ethereum): The original standard for non-fungible tokens — each token has a unique ID and metadata URI.
• ERC-1155 (Ethereum): A multi-token standard that supports fungible and non-fungible items in a single contract — useful for game assets where some items are stackable.
• Other chains: Solana (Metaplex standard), Flow (Dapper Labs), and newer standards tailored to their ecosystems.

Choosing a standard depends on requirements: exclusivity and simplicity (ERC-721) or efficiency and batch operations (ERC-1155).

How NFTs are minted and stored

• Minting: The process of creating a token on-chain, typically involving a transaction that writes token data and metadata URIs to contract storage.
• Metadata: A JSON file describing the asset (name, description, image URL, attributes). Often stored on IPFS or a CDN.
• Storage tradeoffs: On-chain storage is immutable and censorship-resistant but expensive. IPFS + pinned gateways balance cost and decentralization; centralized CDNs are cheaper but reintroduce central points of failure.

Marketplaces and platforms

Popular marketplaces handle discovery, bidding, royalties, and gas optimization:

• OpenSea: Widely used marketplace for Ethereum and some layers.
• Magic Eden: Popular on Solana.
• Rarible, Foundation, Blur: Other notable platforms with different fee/slash/royalty models.

Marketplaces often implement lazy minting (seller signs metadata off-chain) to reduce upfront gas costs — actual on-chain minting happens at purchase time.

Royalties and creator economics

Marketplace royalties enable creators to receive a percentage of secondary sales. However, royalties rely on marketplaces to enforce them; on-chain enforcement is more robust but can be complicated across marketplaces.

Security risks and scams

• Phishing & social engineering: Scammers try to trick users into signing transactions that transfer NFTs or grant approvals to malicious contracts.
• Malicious contracts & approvals: Approving a marketplace or contract with unlimited allowances can let attackers drain assets. Always check the exact function and address you’re approving.
• Fake collections & impersonation: Scammers copy art and deploy fake collections; check contract addresses and verified badges.
• Rug pulls & mint scams: Projects may promise utilities and then disappear with funds.

Safety tips:

• Verify contract addresses and project metadata.
• Use hardware wallets for high-value assets.
• Revoke unnecessary approvals (via tools like Etherscan, Revoke.cash).

Environmental and societal concerns

Two major conversations around NFTs are energy use and cultural impact.

• Energy: Proof-of-work chains (historically Ethereum pre-Merge) had high energy consumption per transaction. Ethereum’s shift to proof-of-stake drastically reduced energy usage. Different chains have varied environmental footprints.
• Cultural impacts: NFTs changed digital art markets and ownership models, but they also raised concerns about speculation, copyright, and exclusionary pricing.

Use cases beyond collectibles

• Digital identity & credentials: NFTs can represent certificates, badges, or academic credentials.
• Gaming & virtual goods: True ownership of in-game items and cross-platform portability.
• Real-world assets: Tokenized real estate, limited-edition physical goods, and supply-chain provenance.

Best practices for creators and buyers

• Creators: pin metadata to IPFS, explicitly document editions/rights, and implement transparent royalty schemes.
• Buyers: verify project contracts, avoid signing unknown transactions, and consider custody strategies (hardware wallets, multisig).

Closing thoughts

NFTs are a flexible primitive for representing uniqueness on-chain. They open new economic and creative possibilities, but they also require caution — understand what rights the token actually confers and stay vigilant against common scams.

Sources & further reading

• Ethereum ERC-721 standard: https://eips.ethereum.org/EIPS/eip-721
• ERC-1155 standard: https://eips.ethereum.org/EIPS/eip-1155
• Metaplex (Solana NFT standard): https://docs.metaplex.com/
• Revoke approvals: https://revoke.cash/