An NFT (non-fungible token) is a blockchain token with a unique ID that records who owns a specific item, such as a digital artwork, a game item, a ticket or a membership. Unlike bitcoin, where every unit is interchangeable, each NFT is distinct. Owning an NFT usually does not mean owning the copyright in the underlying file.
Fungible vs non-fungible tokens: what's the difference?
| Feature | Fungible tokens (e.g. BTC, ETH, USDT) | Non-fungible tokens (NFTs) |
|---|---|---|
| Interchangeable? | Yes: one unit equals any other unit | No: each token has its own ID |
| Divisible? | Yes, into small fractions | Usually no |
| Typical Ethereum standard | ERC-20 | ERC-721 or ERC-1155 |
| Price discovery | Continuous, deep markets | Each item priced separately; often thin markets |
| Everyday analogy | A £10 note | A numbered concert ticket |
How do NFTs work?
Most NFTs are created with the ERC-721 standard (one contract, many unique token IDs) or ERC-1155 (one contract that can hold both unique and fungible items) on Ethereum and compatible chains. The token stores an ID and a link to metadata, which describes the item and points to the image or file. The file itself is rarely stored on the blockchain because that would be very expensive.
- Minting: a creator calls a smart contract that creates a new token ID and links it to metadata.
- Recording ownership: the blockchain records which wallet address holds each token ID, and anyone can check it.
- Transfer: a sale or gift moves the token to another address; the full ownership history stays public.
- Royalties (optional): the EIP-2981 standard lets a contract signal a royalty for resales, but the standard itself says payment is voluntary, so marketplaces decide whether to honour it.
What do you actually own when you buy an NFT?
An NFT buyer owns a token that points to something. Unless the project's licence says otherwise, the creator keeps the copyright, so you usually cannot reproduce or commercialise the artwork. If the metadata or image is hosted on an ordinary web server rather than on decentralised storage such as IPFS, the link can break and the token can end up pointing to nothing. Before buying, check the licence terms, where the files are stored and whether the contract lets the team change the metadata.
What are NFTs used for beyond digital art?
- Ticketing: tickets whose authenticity and resale history can be checked on-chain.
- Gaming items: in-game assets that players hold in their own wallets and can trade.
- Memberships and credentials: access passes, attendance badges and certificates, including non-transferable "soulbound" tokens.
- Domain names: blockchain names such as ENS names are NFTs.
- Real-world assets: some projects use NFTs to represent unique physical items, while divisible assets such as tokenized gold usually use fungible tokens. Our guide to real-world asset tokenization covers the difference.
What are the risks of buying NFTs?
- Illiquidity: each NFT needs a specific buyer, so selling can take a long time or require a deep discount.
- Price volatility and hype: the speculative boom of 2021 was followed by a sharp fall in trading activity, and many collections lost most of their value.
- Wash trading: sellers can trade with themselves to fake demand and prices.
- Scams: fake collections, phishing mint sites and malicious approval requests are common. See our guide to common crypto scams.
- Regulatory risk: on 28 August 2023 the SEC charged Impact Theory with an unregistered securities offering after it marketed NFTs as an investment in the company's success.
How are NFTs taxed?
In the US, NFTs are digital assets and are taxed as property. IRS Notice 2023-27 says the IRS intends to use a "look-through" test: if the asset an NFT represents is a collectible, such as a gem, the NFT is treated as a collectible, and long-term gains on collectibles can be taxed at up to 28% rather than the usual maximum of 20%. In the UK, HMRC treats NFTs as cryptoassets for capital gains tax, and because each NFT is separately identifiable it is not pooled with other tokens. Our guide to crypto tax basics explains disposals and cost basis.
Do Wealtii funds hold NFTs?
No. Wealtii's funds hold fungible tokens. The Core fund is all crypto, while the Growth and Balanced funds also hold tokenized stocks and ETFs, tokenized gold (XAUT) and a tokenized silver ETF. You can see the holdings of the Wealtii Multi-Asset Balanced Allocation Fund. Wealtii is not regulated.
Frequently Asked Questions
What is an NFT in simple terms?
An NFT (non-fungible token) is a blockchain token with its own unique ID that records who owns a specific item, such as a digital artwork, a game item, a ticket or a membership. Unlike bitcoin, where every unit is interchangeable, each NFT is distinct and cannot be swapped one-for-one with another.
Does buying an NFT give me the copyright?
Usually not. An NFT records ownership of a token that points to a file or item. Copyright and other intellectual property rights stay with the creator unless the project’s licence terms expressly grant them, so read the licence before you buy.
Do NFT creators always receive royalties on resales?
No. The EIP-2981 royalty standard only lets an NFT contract signal a royalty amount and recipient; it states that payment is voluntary. Whether a royalty is paid depends on the marketplace where the resale happens.
How are NFTs taxed?
In the US, NFTs are digital assets taxed as property, and IRS Notice 2023-27 says the IRS will treat an NFT as a collectible when the asset it represents is a collectible, which can mean a higher long-term rate of up to 28%. In the UK, NFT disposals generally fall under capital gains tax, and each NFT is tracked separately rather than pooled.
Sources & References
- Ethereum Improvement Proposals — EIP-721: Non-Fungible Token Standard (accessed 21 Oct 2026)
- Ethereum Improvement Proposals — EIP-2981: NFT Royalty Standard (accessed 21 Oct 2026)
- IRS — Notice 2023-27: Treatment of certain NFTs as collectibles (accessed 21 Oct 2026)
- HMRC Cryptoassets Manual — CRYPTO22200: Capital Gains Tax pooling (NFTs are not pooled) (accessed 21 Oct 2026)
- US SEC — Impact Theory charged over unregistered offering of NFTs (28 Aug 2023) (accessed 21 Oct 2026)
Disclaimer: Educational content only, not financial or tax advice. NFTs and other digital assets are volatile and can become illiquid or worthless. Wealtii is early-stage and is not regulated by any financial regulator.
