A non-fungible token (NFT) is a token on a blockchain that is unique and cannot be swapped one-for-one with another token. Each NFT has its own ID inside a smart contract, and the blockchain publicly records which wallet holds it. That record is what an NFT is. The image, video or game item linked to the token is usually stored somewhere else, and owning the token does not automatically give you copyright in that work.
The latest: a major NFT marketplace is shutting its website
On 12 October 2026, one of the largest NFT marketplaces of the last cycle said it will close its frontend (the website people use to trade) in November 2026, according to The Block. The onchain marketplace protocol will keep running. The marketplace's NFT lending product stops matching new loans on 12 November 2026. Borrowers can repay or default until then, and the team plans a tool to help users withdraw assets from the lending product afterwards.
The Block's data shows how far activity has fallen. The marketplace's monthly trading volume peaked at about $1.43 billion in March 2023 and was below $7 million by March 2026.
The practical point for holders: tokens sit in your wallet, not on the marketplace. When a website closes, your NFTs are still on the blockchain, but liquidity and the tools for using them can disappear.
Fungible vs non-fungible
A fungible asset can be swapped for any other unit of the same asset. One dollar note can replace another, and one unit of ether can replace another. A non-fungible asset cannot. Ethereum's own documentation puts it simply: "NFTs are tokens that are individually unique."
If you lend someone a $100 note, they can hand you back a different $100 note and you are even. If you lend someone a specific painting, they have to give you back that painting.
How an NFT works
The token standards
Most NFTs on Ethereum follow one of two standards:
- ERC-721 (EIP-721, created 24 January 2018). It describes itself as "a standard interface for non-fungible tokens, also known as deeds." Every token has a unique ID, and the contract records who owns each ID. The authors list possible uses that include physical property such as real estate and artwork, virtual collectibles, and even "negative value" assets such as loans.
- ERC-1155 (EIP-1155) is a single contract interface "that can represent any number of fungible and non-fungible token types." It also allows several token types to be transferred at once to save on transaction costs. Games often use it.
Where the image actually lives
ERC-721 gives each token a tokenURI, which the standard defines as "a distinct Uniform Resource Identifier (URI) for a given asset." That URI may point to a JSON metadata file, and the file usually points to the image or media. The standard's authors considered putting all metadata on the blockchain and rejected the idea as too expensive. So in many collections the artwork sits on a separate server or storage network. If that storage goes offline or is changed, the token still exists but may no longer show what the buyer expected.
Minting and transfers
"Minting" means calling a smart contract to create a new token and assign it to a wallet. Selling or transferring an NFT is a blockchain transaction, so it costs a network fee (gas on Ethereum), which varies with network demand.
Would the IRS treat your NFT as a collectible?
Answer up to three questions to see how the IRS look-through rule in Notice 2023-27 sorts an NFT.
Is the question about U.S. tax?
- Yes, U.S. tax → next question
- No, another country → Different rules apply
What does the NFT certify or represent?
- Ownership of a physical item, such as a gem or a painting → Treated as a collectible
- Virtual land or an in-game item → Not a collectible under the look-through
- Another asset or right → next question
Is that underlying asset a collectible under section 408(m)?
The IRS looks through the NFT to the asset it represents. When that asset is a collectible, the NFT is one too, and collectible gains can be taxed at up to 28%.
In the IRS examples, an NFT tied to virtual land or an in-game item does not count as a collectible, because the asset it represents is not one.
The outcome turns on whether the asset or right behind the NFT is a collectible under section 408(m). Find out what the token actually represents before deciding which treatment fits.
Notice 2023-27 is U.S. guidance. Rules in other countries differ.
This shows only the IRS look-through test from Notice 2023-27, which applies until further guidance. It does not work out your tax, cover other countries' rules, or replace advice from a tax professional.
What you get when you buy an NFT
- Verifiable holding of the token. "Ownership of an asset is publicly verifiable on Ethereum," according to ethereum.org.
- Not automatically the copyright. Rights in the underlying work depend on the licence or terms attached to that collection. In a joint study released on 12 March 2024, the U.S. Copyright Office and the USPTO noted concerns that buyers and sellers may not understand which intellectual property rights an NFT transaction involves. They concluded that changes to IP law were "not necessary or advisable at this time" and pointed to public education and transparency as the answer.
- Royalties are not guaranteed. EIP-2981, the royalty standard, says "the royalty payment must be voluntary," because tokens can move between wallets without a sale. Only marketplaces that adopt the standard commit to paying royalties.
Where NFTs have been used
Art
Beeple's Everydays: The First 5000 Days sold at Christie's for $69,346,250, including buyer's premium, in an online auction that ran from 25 February to 11 March 2021. Christie's described it as the first purely digital NFT-based work sold by a major auction house. The work combines 5,000 images that Beeple (Mike Winkelmann) posted daily from May 2007.
In December 2025, the Museum of Modern Art added eight CryptoPunks and eight Chromie Squiggles to its permanent collection, according to The Block.
Collectibles and profile pictures
- CryptoPunks are 10,000 algorithmically generated characters, launched in June 2017 by Larva Labs (Matt Hall and John Watkinson). Yuga Labs bought the intellectual property in March 2022 and sold it to the nonprofit NODE Foundation in May 2025. The price of that sale was not disclosed.
- Bored Ape Yacht Club is a Yuga Labs collection of 10,000 Ape NFTs, launched in spring 2021.
- On 20 January 2022, Twitter let Twitter Blue subscribers on iOS connect a wallet and show an NFT as a hexagon-shaped profile picture.
Sports
NBA Top Shot, from Dapper Labs, sells licensed video highlights ("Moments") as NFTs on Dapper's Flow blockchain. In a U.S. securities lawsuit over Top Shot, the judge noted that Moments trade only on Flow and said not all NFTs are securities. Each case needs its own analysis.
Fashion
- Gucci's first NFT was a film based on its Aria collection, co-directed by Alessandro Michele and Floria Sigismondi. Christie's offered it in an auction from 25 May to 3 June 2021, with an opening bid of $20,000. Proceeds went to UNICEF USA to support COVAX.
- Louis Vuitton launched Louis: The Game in August 2021 to mark 200 years since its founder's birth. The game includes 30 NFTs featuring work by Beeple.
Gaming and access
Ethereum's documentation lists game items, domain names, event attendance proofs, course certificates and gated access as uses alongside art and collectibles. Game items are only useful while the game that recognises them keeps running.
Costs, taxes and risks
- Liquidity. Prices depend on finding a buyer, and many collections now trade far below their highs. The closing marketplace's drop from about $1.43 billion to under $7 million in monthly volume (The Block) shows how quickly activity can dry up.
- Fees. Every mint, sale and transfer pays a network fee. Marketplace fees and creator royalties may come on top of that.
- Security. Ethereum's documentation says NFT losses are "most often related to phishing scams, smart contract vulnerabilities or user errors." Check contract addresses against the project's official channels, and never sign wallet requests you don't understand.
- Storage. If the metadata or media is stored off-chain, find out where and who controls it.
- U.S. tax. In Notice 2023-27, the IRS said that until it issues further guidance, it will "look through" an NFT to the asset or right it represents. An NFT is treated as a collectible if that underlying asset is one under section 408(m). An NFT certifying ownership of a gem or a physical painting would count as a collectible, while one tied to virtual land or an in-game item would not. Collectible gains can be taxed at up to 28%. Rules in other countries differ.
Before you buy
- Read the collection's licence or terms to see which rights, if any, come with the token.
- Check which blockchain it uses and which wallets support it.
- Find where the metadata and media are stored.
- Look at actual recent sales, not just listing prices.
- Count every fee: network, marketplace and royalty.
