What Is an NFT? How They Work, How to Buy, and How to Get Started

An NFT, or Non-Fungible Token, is a way to prove unique ownership of digital data using blockchain technology. In 2021, digital artist Beeple's work sold for approximately $69 million at auction, sparking widespread adoption across art, gaming, music, and more. This article explains how NFTs work, how to buy them, and what risks to be aware of — in plain language for beginners.

What you'll learn in this article

• How NFTs (Non-Fungible Tokens) work and what makes them unique
• The main use cases for NFTs (art, gaming, music, and more)
• A step-by-step guide to buying and getting started with NFTs
• The risks and scam tactics you need to know before trading NFTs

The core idea behind NFTs is that they give digital data a sense of "uniqueness." Because ownership records and transaction history are stored on a blockchain (a distributed ledger), copying or tampering with that data is extremely difficult.

"Non-fungible" means something that cannot be exchanged for something else of equal value. For example, any ¥10,000 bill is worth exactly as much as any other — that makes it "fungible." But a one-of-a-kind painting cannot be replaced by anything else, making it "non-fungible." NFTs bring this concept of uniqueness to the digital world.

NFTs vs. Cryptocurrency

Both NFTs and cryptocurrencies use blockchain technology, but they differ fundamentally in fungibility.

Why NFTs Matter

The biggest reason NFTs have attracted so much attention is that they introduced the concept of "ownership" to digital content. In the past, digital files could be copied endlessly with no way to distinguish the original from a copy. NFTs are changing that — giving creators of digital art, music, and other content a way to be fairly compensated for their work.

NFTs also support royalty mechanisms, where a percentage of every resale goes back to the original creator. This has positioned NFTs as a new model for the creator economy.

NFTs are being used in a rapidly growing range of areas, from digital art and gaming to music and real estate. Here are four of the most prominent use cases.

Digital Art

The most well-known application of NFTs is digital art. In 2021, Beeple's work "Everydays: The First 5000 Days" sold for approximately $69 million. Collections like CryptoPunks (released in 2017, with a total supply of 10,000) and BAYC (Bored Ape Yacht Club) have also become hugely popular as PFP (profile picture) NFTs.

Gaming (GameFi / Play-to-Earn)

In blockchain-based games, in-game characters, items, and land are issued as NFTs. Players can buy and sell the NFT items they earn in-game on marketplaces, giving rise to the "Play-to-Earn" model. Axie Infinity, The Sandbox, and STEPN are well-known examples.

Music, Video, and Tickets

More and more music artists are selling tracks as NFTs. Event tickets are also being issued as NFTs, helping combat ticket scalping and serving as proof of attendance (POAP). Because NFT tickets are verified on the blockchain, they effectively solve the problem of counterfeit tickets.

Memberships and Community Access

Utility NFTs are also gaining traction, where holding a specific NFT acts as a membership pass granting access to exclusive communities or perks. BAYC, for instance, offers holder-only events and airdrop benefits.

The technical foundation of NFTs is the ERC-721 standard on the Ethereum blockchain. ERC-721 specifies that each token has a unique ID, and it is this unique ID that guarantees a token's one-of-a-kind nature.

An NFT's data structure typically includes the following elements:

• Token ID: A unique number identifying the NFT
• Owner address: The wallet address of the current owner
• Metadata: Information such as the item name, description, and image URL
• Transaction history: A complete record of all past sales, stored on the blockchain

Supported Blockchains

NFTs can be minted and traded on blockchains beyond Ethereum.

Purchasing an NFT involves the following five steps. Work through them in order and you'll be fine, even as a complete beginner.

Step 1: Open an Account at a Crypto Exchange

Start by opening an account at a cryptocurrency exchange (such as OKJ). You'll need to submit identity verification documents, but accounts can typically be approved same-day or within a few days.

Step 2: Buy Ethereum (ETH)

You'll need cryptocurrency to trade NFTs. If you're using the Ethereum blockchain — where the largest number of NFTs are traded — you'll want to buy ETH (Ether).

Step 3: Set Up a Wallet

To manage your cryptocurrency and connect to NFT marketplaces, you'll need a wallet like MetaMask. MetaMask is available as a free browser extension and is a great option for beginners.

How to use MetaMask |How to use Rabby Wallet

Step 4: Transfer ETH to Your Wallet

Send the ETH you purchased on the exchange to your MetaMask wallet. Make sure to enter the wallet address exactly — sending funds to the wrong address could result in a permanent loss. It's a good idea to do a small test transfer first.

Step 5: Buy an NFT on a Marketplace

Once you have ETH in your wallet, connect it to an NFT marketplace like OpenSea, find an NFT you like, and make your purchase. You can either buy at the listed price instantly or submit an offer at a price of your choosing.

OpenSea | No. 1 NFT Trading Platform by Volume

Here are the main marketplaces where you can buy and sell NFTs. Beginners may feel more comfortable starting with Japanese-language platforms like Coincheck NFT or Adam byGMO.

If you use overseas marketplaces, be vigilant about phishing scams. Always open official site URLs from your bookmarks rather than clicking links.

NFT trading comes with several risks. Make sure you understand the following points thoroughly before investing or making a purchase.

Price Volatility and Liquidity Risk

NFT prices can fluctuate significantly based on supply and demand. It's not uncommon for an NFT that was purchased at a high price to become worthless. There's also liquidity risk — the possibility that you won't be able to sell an NFT because there are no buyers. Only trade with money you can afford to lose.

Scams and Security Risks

The tactics used in NFT scams are becoming increasingly sophisticated: fake marketplace links, counterfeit NFTs, fraudulent DMs on Discord and social media, and rug pulls (where developers disappear with investors' funds) have all been reported. Always verify official website URLs and avoid clicking links from unknown sources.

Copyright and Legal Risks

There have been cases of people minting NFTs of others' copyrighted works without permission. It's important to understand that buying an NFT means acquiring "ownership" of that token — not the copyright to the underlying work. Additionally, profits from NFT sales are generally taxable as miscellaneous income (refer to official tax authority guidelines for details).

Q. Can I create an NFT for free?

Yes, minting an NFT is free or very low-cost on many marketplaces. However, recording the NFT on the blockchain may incur gas fees (network transaction fees). Using the Polygon chain can bring gas fees down to nearly zero.

Q. Do I need cryptocurrency to buy an NFT?

Most marketplaces require cryptocurrency (primarily ETH), but some Japanese platforms like Coincheck NFT and Adam byGMO support credit card or Japanese yen payments. Beginners may find it easiest to start with a service that accepts JPY.

Q. Can an NFT lose all its value?

Yes. The value of an NFT is determined by market demand, so if demand disappears, the value can drop to zero. NFTs that were driven up by speculation have often experienced sharp price drops after the bubble burst. When buying, it's important to consider the long-term value of what you're purchasing.

Q. Do I have to pay taxes on NFT sale profits?

Yes. Profits from NFT sales are generally classified as "miscellaneous income" and are subject to income tax. If your profit exceeds ¥200,000 in a year, you'll need to file a tax return. For details, refer to the relevant tax authority's FAQ on cryptocurrency.

To get the ETH (Ethereum) you need for buying NFTs, we recommend the domestic exchange OKJ (OKCoinJapan). Right now, simply open an account and complete identity verification (KYC) within one month to receive 1,000 yen worth of Bitcoin for free.

Plus, follow the steps in our guide to opening an OKJ account and getting 1,000 yen in Bitcoin, complete the account opening and KYC, then tap "Opened an OKJ account and completed KYC (points awarded after verification)" on your Candy Drops profile page to earn 50,000 Candy Drops points. These points can be used to enter campaigns where you can win crypto and Amazon gift cards.

NFTs (Non-Fungible Tokens) use blockchain technology to prove unique ownership of digital data. They are being adopted across a wide range of fields — art, gaming, music, and tickets — and getting started is as simple as following five steps: open an exchange account, buy ETH, set up a wallet, transfer your ETH, and buy on a marketplace. That said, price volatility and scam risks are real, so always trade with money you can afford to lose and make a habit of verifying official sources.

Reference sources:

• Ethereum Foundation — What are NFTs?
• Financial Services Agency (Japan) — Information on Crypto Assets
• National Tax Agency (Japan) — Tax Treatment of Crypto Assets