ERC-721

What makes a token non-fungible

Each ERC-721 token has a unique tokenId within its contract. While ERC-20 tracks balances ("you have 100 of this token"), ERC-721 tracks specific ownership ("you own token #1234, you own token #5678").

This distinction matters because each NFT can have its own properties — different artwork, different traits, different metadata — making them suitable for things that aren't interchangeable: digital art, collectibles, membership passes, in-game items, real-world asset titles.

Core functions

The standard requires:

• ownerOf(tokenId) — return the address that owns a specific token.
• transferFrom(from, to, tokenId) — transfer a specific token.
• approve(to, tokenId) — authorize transfer of a specific token.
• setApprovalForAll(operator, approved) — authorize an operator (e.g., a marketplace) to manage all your tokens in this contract.
• tokenURI(tokenId) — return a URI pointing to the token's metadata (typically JSON describing the artwork, traits, etc.).

Plus events: Transfer and Approval for wallets and indexers.

How NFTs got built

ERC-721 was introduced in 2018, motivated initially by CryptoKitties (which ran into Ethereum congestion in late 2017 and wanted a more efficient standard). The early years were slow; the 2021 NFT boom — driven by CryptoPunks, Bored Ape Yacht Club, Art Blocks, and OpenSea trading volume — established NFTs as a major category.

Major use cases that stuck:

• PFP collections — CryptoPunks, Bored Apes, Pudgy Penguins, Azuki. Identity-as-art.
• Generative art — Art Blocks, fxhash. Algorithmically created art with on-chain randomness.
• 1-of-1 art — single-edition pieces from individual artists, often on platforms like Foundation, Zora, or SuperRare.
• Music and media — early experiments; mostly haven't reached durable scale.
• Membership and access — Friends With Benefits, various DAO membership NFTs, event ticket NFTs.
• Gaming — though mostly using ERC-1155 for items rather than ERC-721.

Metadata: on-chain vs off-chain

The tokenURI returns a pointer to metadata, which contains the actual content the NFT represents (artwork URL, traits, description). This pointer can be:

• On-chain — the metadata itself is stored in the smart contract or generated on-chain. Most expensive; strongest permanence guarantees. CryptoPunks, Art Blocks, Nouns are examples.
• IPFS — content-addressed storage. Permanent as long as someone pins it; relatively common for serious collections.
• Arweave — pay-once permanent storage. Often used by collections wanting permanence without ongoing IPFS pinning.
• Centralized HTTP — fast but the NFT depends on the team's server staying up. Many lower-quality projects use this; if the server goes down, the NFT effectively becomes broken.

The "is the actual artwork really yours" question depends on metadata storage. An NFT pointing to a centralized server isn't durably yours in the way an on-chain or IPFS-stored one is.

Royalties

NFT royalties — automatic payments to original creators on secondary sales — were initially enforced by marketplaces (OpenSea routed a percentage to the creator on every secondary sale). In 2023, Blur and other marketplaces stopped enforcing royalties, leading creators to lose what had been a substantial income stream.

ERC-2981 standardized how royalty information is encoded but doesn't enforce payment. Whether royalties get paid depends on which marketplace handles the sale and how it implements the optional royalty.

The 2021-2022 boom and bust

NFT trading volume peaked in 2021-2022 and crashed dramatically:

• Peak — January 2022, $17B+ monthly volume on OpenSea alone.
• Trough — late 2023, monthly volume down 95%+ from peak.
• 2024-2025 — volume has stabilized at much lower levels; specific niches (PFP, generative art) maintain activity, but the broad mania has faded.

The boom-bust cycle was sharp even by crypto standards. Many high-priced PFP projects retain only a small fraction of their peak floor prices.

Where NFTs work and don't

Use cases that have shown durability:

• Generative and 1-of-1 digital art. Has built a serious art market with collectors, galleries, and ongoing demand.
• Membership and access tokens. Where the NFT genuinely confers ongoing value (community membership, ticket access).
• Domain names (ENS) — ENS names are technically ERC-721 tokens.

Use cases that have struggled:

• PFP collections generally, where the use case was largely identity signaling and price speculation. Most have lost 80-95% of peak values.
• Music NFTs — never reached meaningful scale.
• Real-world assets via NFTs — has moved largely to other formats (ERC-20 tokenized funds, RWA-specific platforms).

The category remains real but smaller than the 2021 mania suggested. The technical standard is enduring; specific applications have varied wildly in durability.