[Paper Review] Non-Fungible Token (NFT): Overview, Evaluation, Opportunities and Challenges

Qin Wang, Rujia Li+2 more|arXiv (Cornell University)|May 16, 2021

Blockchain Technology Applications and Security39 references591 citations

TL;DR

This technical report provides a systematic study of NFT ecosystems, detailing core components, protocols, standards, security evaluation, opportunities, and open challenges. It is among the first comprehensive analyses of NFT technologies and their governance, privacy, and interoperability issues.

ABSTRACT

The Non-Fungible Token (NFT) market is mushrooming in recent years. The concept of NFT originally comes from a token standard of Ethereum, aiming to distinguish each token with distinguishable signs. This type of token can be bound with virtual/digital properties as their unique identifications. With NFTs, all marked properties can be freely traded with customized values according to their ages, rarity, liquidity, etc. It has greatly stimulated the prosperity of the decentralized application (DApp) market. At the time of writing (May 2021), the total money used on completed NFT sales has reached $34,530,649.86$ USD. The thousandfold return on its increasing market draws huge attention worldwide. However, the development of the NFT ecosystem is still in its early stage, and the technologies of NFTs are pre-mature. Newcomers may get lost in their frenetic evolution due to the lack of systematic summaries. In this technical report, we explore the NFT ecosystems in several aspects. We start with an overview of state-of-the-art NFT solutions, then provide their technical components, protocols, standards, and desired proprieties. Afterward, we give a security evolution, with discussions on the perspectives of their design models, opportunities, and challenges. To the best of our knowledge, this is the first systematic study on the current NFT ecosystems.

Motivation & Objective

• Abstract the design models of current NFT solutions and identify core technical components used to construct NFTs.
• Present protocols, standards, and targeted properties of NFT systems.
• Provide a security evaluation using STRIDE to identify vulnerabilities and defenses.
• Explore future opportunities of NFTs across gaming, events, art, and the metaverse.
• Highlight open challenges in usability, governance, privacy, and extensibility.

Proposed method

• Analyze NFT design patterns and workflows for top-to-bottom and bottom-to-top NFT creation models.
• Describe token standards ERC-20, ERC-721, and ERC-1155 and their implications for NFT representation.
• Apply STRIDE threat modeling to assess authenticity, integrity, confidentiality, availability, and authorization risks.
• Review proofs-of-concept and real-world NFT applications to illustrate opportunities.
• Discuss practical governance, legal, and tax considerations relevant to NFT markets.

Experimental results

Research questions

• RQ1 What are the fundamental design patterns and protocol components that underpin NFT systems?
• RQ2 How do current NFT token standards (ERC-20, ERC-721, ERC-1155) influence NFT functionality and interoperability?
• RQ3 What security and privacy risks arise in NFT ecosystems and what defenses are viable?
• RQ4 What opportunities do NFTs enable across gaming, art, events, and the metaverse?
• RQ5 What are the main open challenges in usability, governance, and extensibility for NFT systems?

Key findings

• NFT ecosystems combine blockchain, smart contracts, and storage with two main design patterns: top-to-bottom NFT creation and template-based bottom-up creation.
• ERC-721 and ERC-1155 enable non-fungible and multi-token representations, while ERC-20 represents fungible tokens; these standards shape NFT interoperability and use cases.
• STRIDE-based security analysis highlights risks such as spoofing, tampering, repudiation, information disclosure, DoS, and privilege elevation, with proposed defenses like formal verification and privacy-preserving contracts.
• NFTs enable new business models in gaming (royalties on resales, digital collectibles), event ticketing, digital art provenance, and the metaverse, driving growth in decentralized applications and marketplaces.
• Privacy, data availability, cross-chain interoperability, and regulatory considerations are key challenges in NFT adoption and governance.