How do NFTs work?

One of the easiest ways to visualize an NFT is as a digital “record of ownership”. In many ways it’s like an artwork’s certificate of authenticity, a car’s title or the deed to a house.

Instead of a physical piece of paper you can hold, however, this “certificate” is recorded on a blockchain, where it is linked to your digital address. This not only guarantees the legitimacy of the asset, but also proves that you own it.

Contrary to popular belief, most NFTs don’t actually host the underlying asset (art, music, etc…) on a blockchain, as this would be extremely expensive (i.e. storing even a modest picture could cost thousands of dollars). Instead, the assets themselves are generally stored a separate server, and the NFT contains a link that points to the address of this database (or, as one expert said, an NFT is like “directions to the museum”).

To understand how NFTs work, it’s helpful to understand three concepts: 1) what is a token? 2) what makes a token “non-fungible”? and 3) what is a smart contract platform?