## 3 Understanding Non-Fungible Tokens
### Cost and Risks  
Although the potential of NFTs is arguably undisputable, it must be noted that there are costs for creating and trading crypto collectibles, as well as potential risks, which should be addressed by any individual or organisation seeking to utilise this new medium. Regarding the former, to create and trade NFTs, or to perform any other blockchain-based transaction, one must pay the so called _gas fees_, i.e., fees that are paid to _node operators_ to register new transactions on the respective blockchain [72]. Node operators play a vital role for a blockchain's proper functioning; they lend their computer's resources (e.g., RAM, disk space, bandwidth) to it, by running a software that \"keeps a full copy of the blockchain\" and also \"broadcasts transactions across the [blockchain] network\" [73]. Gas fees depend on the volume of transactions taking place on the blockchain network at a given moment. As a result, for the Ethereum network in particular, where most NFTs are currently being traded, gas fees can get particularly high [74], ranging between 4 and 70 USD per transaction, as shown in Figure 1[75]. Therefore, even if one was only interested in experimenting with NFTs, they would be required to have a budget to spend towards gas fees for any blockchain-related operation. However, some marketplaces have already started exploring solutions that eliminate gas fees by reducing the number of on-chain transactions [76]. Besides fees, there are also potential risks involved when creating and trading crypto collectibles. The main risk associated with NFTs is the same one that applies to any other token, or cryptocurrency, which relates to the security of crypto wallets and their cryptographic keys that allow their owners to access them. Some popular NFT platforms own and manage these keys on behalf of their users, serving as _custodial wallets_. An indicative example of a custodial wallet is the Binance NFT Marketplace (www.binance.com/en/nft, accessed on 18 October 2021). Custodial wallets are simple to set up, require no familiarity with blockchain technologies and platforms and have all the conveniences one would expect, such as password recovery and account retrieval. On the downside, users of custodial wallets do not have true ownership of their NFTs, as these are not stored in their own crypto wallets on the blockchain. As a result, if the wallet provider's infrastructure gets compromised, or the firm declares bankruptcy, solvency issues would arise (similar to the MtGox case in Bitcoin wallets [77]). On the other hand, users who store their NFTs into crypto wallets that they manage themselves also face risks; if they happen to lose access to their wallet, or forget the wallet's cryptographic keys, then they immediately lose access to all of the wallet's contents [78], because a process for retrieving crypto wallets has yet to be established without compromising the integrity of the respective blockchain. Due to the importance of the key loss issue, hybrid solutions have been proposed, whereby the key is split between multiple entities [79]. More recently, a new smart contract method named KELP was introduced, which manages to regain access to a lost crypto wallet [80]; however, it has yet to be tested widely. Another common risk for buyers of digital collectibles regards asset access and storage. Commonly known as the \"pull the rug\" risk [81], it concerns whether buyers of NFTs have guaranteed and continued access to the assets represented by their NFTs. As mentioned earlier, the most widely used storage solution at present is the decentralised storage system IPFS. In such decentralised solutions, node operators need incentives for the continuous maintenance of copies of all files. More importantly, there has yet to be some form of assurance that every asset will continue to be stored forever in the storage system and it is technically possible under certain circumstances for an asset to be deleted or to become inaccessible at some point in the future.