Are NFTs Still Relevant? A Breakdown of Their Utility

Non-Fungible Tokens (NFTs) are unique digital identifiers recorded on a blockchain, a decentralized and immutable ledger. They certify ownership and authenticity of specific digital or, at times, physical assets. Unlike traditional currencies or cryptocurrencies, NFTs are non-fungible, meaning each one is distinct and cannot be directly replaced by another.
NFTs gained significant public attention and experienced market fluctuations. While initial excitement focused on speculative investments, the underlying technology offers potential for broader applications. This article explores the current status and diverse utility of NFTs in today’s digital landscape, moving beyond early perceptions to examine their evolving practical uses.

Current Market Activity

The NFT market continues to evolve, shifting from speculative interest to utility-driven engagement. While trading volumes have adjusted, significant activity persists across platforms like OpenSea, Blur, and Magic Eden.
Current trends show market maturation, focusing on specific niches. Digital art and collectibles remain, but emphasis grows on NFTs with embedded utility, such as gaming assets and membership tokens. In-game items, characters, and virtual land are actively traded, allowing verifiable ownership within digital ecosystems.
The IRS generally treats NFT transactions as property, similar to cryptocurrencies. Gains or losses from selling NFTs are typically subject to capital gains tax. The tax rate depends on the holding period: short-term gains (one year or less) are taxed at ordinary income rates (10% to 37%).
Long-term gains (over a year) generally benefit from lower rates (0% to 20%). However, certain NFTs resembling traditional art or collectibles might be classified as “collectibles” and taxed at a higher 28% long-term capital gains rate. This classification depends on whether the underlying asset falls under categories like art, rugs, antiques, metals, gems, stamps, or coins.
For creators, income from primary NFT sales or royalties from secondary sales is typically ordinary income. This income is often reported on Schedule C (Form 1040) if the activities constitute a trade or business.
Transaction fees, or “gas fees,” paid to process NFT transactions can impact tax calculations. Gas fees incurred during acquisition can be added to an NFT’s cost basis, reducing taxable capital gain upon sale. For businesses, these fees may be deductible as ordinary business expenses.
Accurate record-keeping is crucial for all NFT participants to determine cost basis, calculate gains or losses, and ensure tax compliance. Taxpayers use Form 8949 to report individual NFT transactions, with totals transferred to Schedule D. Platforms are also expected to report certain transactions to the IRS.

Practical Applications

NFTs are finding utility beyond speculative art, integrating into various industries. Their ability to represent unique, verifiable ownership drives diverse applications, demonstrating a shift towards functional assets.
In gaming, NFTs are integral to the play-to-earn model. Players own in-game assets like virtual land, characters, or skins as NFTs. This verifiable ownership allows trading, selling, or transferring assets across games, creating new economic models.
Digital identity and verifiable credentials are another application. NFTs can serve as unique digital passports or certificates, verifying personal credentials, achievements, or access rights. This enhances security and privacy, giving individuals greater control over their data.
NFTs are revolutionizing ticketing by offering secure, verifiable event entry. NFT tickets, stored on a blockchain, are unique and nearly impossible to counterfeit, reducing fraud and scalping. Smart contracts can control secondary market resales and earn royalties.
Loyalty programs leverage NFTs for exclusive rewards or membership benefits. Businesses issue unique NFTs to loyal customers, granting special perks, discounts, or access to gated content. This fosters deeper engagement and community.
In supply chain management, NFTs provide enhanced transparency, traceability, and authenticity. Assigning a unique NFT to each item records its journey on the blockchain, preventing counterfeiting and improving inventory management.
The real estate sector explores NFTs for fractional ownership of physical property or digital land. Tokenizing assets like property deeds as NFTs can streamline transactions, reduce paperwork, and facilitate fractional investment, making ownership more accessible.

Underlying Technology

NFTs rely on blockchain technology, a distributed public ledger that records transactions securely, transparently, and immutably. This decentralized nature means no single entity controls the network, enhancing security.
Each NFT has a unique digital identifier and is stored on a blockchain, typically Ethereum. This cryptographic asset cannot be replicated or subdivided, distinguishing it from fungible cryptocurrencies. The blockchain records the ownership history of each NFT, providing a verifiable chain of title.
Smart contracts are programmable agreements on the blockchain that automatically execute when conditions are met. They enable features like automated royalty payments to creators and facilitate verifiable scarcity by controlling an NFT collection’s total supply.
The technology enables verifiable digital ownership, meaning an NFT’s ownership can be publicly confirmed and tracked on the blockchain. This contrasts with traditional digital files, which are easily copied. While an NFT certifies ownership, it does not necessarily convey intellectual property rights or copyright to the underlying asset.
The immutability of blockchain records provides trust and auditability for NFT transactions. Once recorded, a transaction cannot be altered or deleted, ensuring ownership history integrity. This transparency simplifies dispute resolution and aids financial reporting.