What is NFT? A complete guide from basic concepts to investment strategies

Core Definition of Non-Fungible Tokens

What is an NFT? NFT stands for Non-Fungible Token, a digital asset on the blockchain characterized by uniqueness and non-replaceability. Artworks, game items, virtual real estate, and more can be minted as NFTs, each with a distinct identity.

Correspondingly, there are FT (Fungible Tokens), such as BTC, ETH, DOGE, which are freely interchangeable cryptocurrencies. Both are issued based on blockchain technology, but their fundamental difference lies in—NFT emphasizes individual uniqueness, while FT emphasizes liquidity and interchangeability. Simply put: if Bitcoin is “money,” then NFT is “art or collectibles.”

Three Stages of NFT Market Development

2017: The Starting Phase

CryptoKitties first brought NFTs into the public eye. In this virtual breeding game, users bid wildly for rare cats, with one named “Dragon” selling for $110,000, even causing congestion on the Ethereum network. This craze proved the trading value of digital assets.

2018 to 2020: Exploration and Consolidation

Although popularity waned somewhat, it did not stop. NFTs gradually expanded into art, entertainment, sports, and other fields. In 2018, the digital artwork “Everydays: The First 5000 Days” sold for $69 million, redefining the upper limit of NFT value.

2021 to Present: Industry Integration

Blue-chip projects like CryptoPunks, BAYC (Bored Apes), Art Blocks emerged, attracting celebrities, artists, and brands. An important shift in this phase is that NFTs transitioned from pure hype to practical applications, especially with closer ties to the real economy. Calligraphy, luxury goods, real estate, and other assets began exploring on-chain models, seen as key directions for the next bull market.

Current Market Status and Data Insights

According to NFTGO data, the NFT market currently hosts over 1,000 projects across 9 fields including art, gaming, domains, and virtual worlds. Among them, top projects like CryptoPunks, BAYC, MAYC, Art Blocks, DeGods account for nearly 50% of the market cap.

However, the overall trend warrants attention: Total NFT market cap continues to decline, trading volume shrinks significantly, and the floor prices of many blue-chip NFTs hit new lows. This reflects a market shifting from hype to rationality.

How to Identify Promising NFT Investments

Key consideration: Does it have the ability to generate value?

Many investors focus on team background, celebrity endorsements, artistic aesthetics, but these are not long-term value supports. Jay Chou endorsing a fantasy bear is a typical negative example—if it cannot sustain value creation, it ultimately becomes worthless.

In contrast, why does BAYC maintain popularity? The core reason is continuous revenue generation through IP creativity, allowing holders to see tangible returns and thus willing to hold. Therefore, the primary criterion for choosing NFTs is whether the business model can sustain self-recycling.

Dual Investment Strategies

Projects with a solid business model are suitable for long-term holding (2-3 years or more), but require patience through exposure and user acquisition phases. Such projects are extremely rare in the market.

Most NFT projects have short lifespans and are suitable for short-term trading (within half a year). Long-term holding is risky because project teams often aim for quick profit-taking and may abandon the project after the cycle.

Selection Points

• Check the project team’s actual operational ability via official website, Telegram, Discord, and other communities
• Verify if the smart contract has minting rights or scam flags; avoid if present
• Compare community activity and creator update frequency

Comparison and Selection of NFT Trading Platforms

Based on latest trading data, the top three platforms are Blur, Opensea, X2Y2.

Blur Platform

• Advantages: Strict art review process, high-quality works, currently 0 fees
• Disadvantages: Smaller user base, limited liquidity and options

Opensea Platform

• Advantages: Longest-standing NFT marketplace, large active user base, wide project selection
• Disadvantages: Centralized operation, relatively higher fees

X2Y2 Platform

• Advantages: Decentralized architecture, emphasizes user privacy, friendly fees
• Disadvantages: New platform, less user accumulation, liquidity to be improved

Platform Selection Tips

Prioritize asset security with X2Y2; choose Blur or X2Y2 if cost is a concern; opt for Opensea if seeking the most new projects. The choice depends on individual needs and trade-offs.

Hidden Risks in NFT Investment and Self-Protection

Liquidity Trap

NFT markets suffer from much lower liquidity compared to fungible tokens. After purchase, quick resale may take days with no buyers. Non-blue-chip projects may have no buyers at all. Be mentally prepared for the possibility of being unable to sell or having to sell at a discount.

Blind Box Scam Risks

NFT blind boxes cannot be verified by images at launch, creating opportunities for counterfeit goods. Many investors have fallen for fake Cool Cats, fake projects, spending real ETH for worthless NFTs that cannot be circulated. Defense tip: Always confirm contract addresses through official channels.

Wallet Authorization Dangers

Signing authorization on third-party sites or recklessly using NFTFi products (NFT + DeFi combos) can lead to assets being stolen or destroyed. Such losses are often unrecoverable. Principle: avoid signing unknown permissions; stay cautious with NFTFi products.

Overall Recommendations

Before investing in NFTs, clarify your risk tolerance and holding period. Blue-chip NFTs are relatively safer for conservative investors, while emerging projects offer higher returns but with increased risk. Regardless of the path chosen, thorough information gathering and rational decision-making are essential.