Deep Understanding of What NFTs Are: From Zero Basics to Investment Decisions

The Essence of NFTs: Uniqueness Creates Value

NFT stands for Non-Fungible Tokens. In Chinese, it is translated as non-fungible tokens. This definition sounds profound, but the essence is simple—it is a digital asset on the blockchain with a unique characteristic.

In contrast are fungible tokens (FT), such as Bitcoin and Ethereum. These tokens are completely interchangeable; one BTC is identical to another BTC. But NFTs are different—each one is unique, like artworks, game character skins, virtual real estate—irreplaceable.

From a technical perspective, both NFTs and FTs are issued on the blockchain using different token standards. NFTs commonly use standards like ERC-721, ERC-1155, BEP-721, while FTs use ERC-20, BEP-20, etc. This technical difference determines their vastly different application scenarios.

The Evolution of NFTs: From Frenzy to Rationality

2017 Crypto Kitty Boom

The story of NFTs began in 2017, sparked by CryptoKitties, which triggered the first wave of enthusiasm. People were wildly breeding and trading virtual cats, even causing congestion on the Ethereum network. A CryptoKitty named “Dragon” sold for $110,000, a staggering figure at the time.

But this wave of enthusiasm quickly subsided. NFTs once fell into silence. However, silence did not mean death—it was a period of exploration into broader fields—art, entertainment, sports gradually became new battlegrounds.

2018 Art Breakthrough

A turning point came in 2018 when the digital artwork “Everydays: The First 5000 Days” sold for $69 million, setting a new record for NFT auctions. This marked NFTs gaining mainstream recognition.

2021 Explosion and Brand Entry

The real explosion happened in 2021. Blue-chip projects like CryptoPunks, Bored Apes (BAYC), Art Blocks emerged. They attracted not only capital but also well-known artists, celebrities, and brands. NFTs jumped from niche circles to a topic of widespread public discussion.

The most critical change during this phase was—NFTs gradually shifted from pure speculation to real-world empowerment. Profile picture NFTs (PFP) gained value support through brand backing. Although this support is still relatively weak, the direction is correct.

An important pattern that emerged is: The NFT market bull run generally coincides with mainstream cryptocurrencies like BTC, but with a delay, usually starting after the FT market.

Current Market Status: Reflections After the Bubble Burst

According to market data, there are about 1,000 NFT projects across nine fields including art, gaming, domain names, virtual worlds, etc. The market is highly concentrated—top projects like CryptoPunks, BAYC, MAYC, Art Blocks account for nearly 50% of the total market cap.

The Cold Reality of Market Contraction

From the peak in 2021 to now, the total market cap of NFTs has shown a clear downward trend, with trading volumes shrinking continuously. Many blue-chip NFTs’ floor prices have hit new lows, and even bored apes are not immune. What does this mean? The wealth of many investors is evaporating.

Where Is the Turning Point?

However, a significant change to watch for in the next bull cycle is—real-world assets being on-chain. This could be the key to breaking through the current predicament. Physical assets linked to NFTs can provide fast, convenient, and effective trading channels, giving real application value to NFTs. Currently, fields like paintings, luxury goods, real estate are exploring this path. This is also the most promising model for the next market cycle.

Key to Investing in NFTs: How to Identify Projects with Vitality

Why bored apes are doing better than Fantom Bears

Even with celebrity endorsements, active communities, and strong artistic qualities, why do some projects become blue-chip classics while others fail? The key lies in a word—ability to generate real revenue.

Bored Apes succeed not because they are beautifully drawn, but because the team continuously transforms the IP into actual income—through brand collaborations, derivative products, or ecosystem development. This demonstrates real cash flow to investors, encouraging them to hold rather than flee.

In contrast, Fantom Bears, despite Jay Chou’s endorsement, lack a subsequent value creation mechanism, ultimately becoming tools for speculators to harvest profits.

Three Dimensions to Recognize a Project

1. Business Model: Does the project have a clear revenue source? Is the team continuously creating value?

2. Community Discussion: Are discussions in Telegram, Discord, etc., about price or application? A healthy community should be filled with substantive discussions about the project’s prospects.

3. Contract Security: Check whether the smart contract has issues like minting loopholes or scam flags. Any red flags, abandon the project immediately.

Timing of Investment Strategies

NFT projects with a solid business model are suitable for long-term holding (2-3 years+), but only if you have patience to see them grow their user base, build their brand, and realize value gradually.

Most projects in the market lack this support and have short lifespans. These projects are only suitable for short-term speculation (within 3-6 months). Never hold them long-term—project creators often plan to quickly harvest profits from the start, then move on to create the next project in a cycle.

Comparison of NFT Trading Platforms: Choosing the Right Stage

According to the latest data, the top three NFT platforms by trading volume are Blur, Opensea, X2Y2.

Blur

• Advantages: Strictest quality review for artworks, strong uniqueness; currently zero fees
• Disadvantages: New platform, smaller user base and liquidity, limited selection

Opensea

• Advantages: The earliest large NFT marketplace, largest user base, ample liquidity, most diverse projects
• Disadvantages: Highly centralized, relatively high fees

X2Y2

• Advantages: More decentralized, focuses on user privacy and data security, lower fees
• Disadvantages: Also faces issues with user base and liquidity

The logic for choosing a platform is simple: if you prioritize security, choose X2Y2; if cost is your concern, go for Blur or X2Y2; if you want quick access to various new projects, use Opensea.

The Three Major Risks in NFT Investment

Liquidity Trap

This is the riskiest aspect that investors often overlook. Buying is easy, selling is hard; your order might remain unfilled for days. Non-blue-chip NFTs may never find a buyer. Therefore, before short-term trading, you must recognize: either you can sell above the floor price, or be prepared for a long-term hold.

Counterfeit Trap

Many NFTs are issued as blind boxes, so you cannot see what you will finally get. Well-known projects are prone to counterfeit issues—many investors accidentally buy fake NFTs during minting, ending up with ETH wasted and unsellable NFTs. After obtaining the contract address, verify authenticity multiple times; official channels are the only trusted source.

Authorization Risks

This is the most deadly. Never authorize your wallet on third-party websites without caution, and avoid using NFTFi products lightly. Once authorized incorrectly, your entire NFT assets could be transferred or destroyed, and this process is completely irreversible. The transparency of blockchain only allows you to watch your assets disappear, not recover them.

In summary, the answer to what is NFT depends on your perspective— for tech enthusiasts, it’s an innovative blockchain application; for artists, it’s a tool for rights confirmation; for investors, it’s a high-risk, high-liquidity asset class with limited liquidity. Regardless of the angle, a deep understanding of its essence, awareness of the market status, and a clear investment strategy are prerequisites for surviving in this field.