What is a non-fungible token (NFT)?

Non-fungible tokens (NFTs) are a class of non-fungible digital assets created based on blockchain technology to represent the uniqueness and ownership of a particular item or content. Unlike interchangeable cryptocurrencies such as Bitcoin and Ethereum, each NFT has unique metadata and identifiers that are not interchangeable with other tokens, making them indivisible and unique.

NFT can carry a wide range of types of digital content, including but not limited to digital artworks, music copyrights, game props, virtual real estate, on-chain domain names and other virtual assets, its core value is to rely on the immutable technical characteristics of the blockchain, for the first time to give digital assets the economic attribute of “confirmed + tradable”. Therefore, the market value of NFTs is mainly driven by subjective factors such as scarcity, community activity, artistic expression and narrative construction ability, showing strong emotions, cultural orientation and high correlation with popular trends.

Bored Ape is the first NFT collectible project created on the Ethereum blockchain (Source: https://www.stadioplus.com/post/most-expensive-nft-art）

What is NFT?

Any digital asset that can be stored on the blockchain in digital form and has identifiable ownership and market value can theoretically be designed as NFT products. With the development of the underlying technology and the growth of the creator ecosystem, the NFT type has shown a trend of diversification and segmentation, covering art, entertainment, games, sports and other fields

1. Digital artworks (Art NFTs
   ) include digital art creations in the form of static images, illustrations, etc., and are the core categories that first triggered the NFT craze. Typical projects such as Bored Ape Yacht Club (Bored Ape) and other avatar NFTs have strong community attributes and identity symbolic value.
2. Game
   NFTsCharacters, pets, equipment and other elements in blockchain games can exist in the form of NFTs, and players can independently own and trade assets. For example, projects such as Axie Infinity and Gods Unchained use NFTs in the game economy to achieve a “Play-to-Earn” model.
3. Digital sports collectible cards
   (Sports NFTs), such as NBA Top Shot, mint the wonderful moments of real players in games into NFTs through the blockchain, which users can collect, trade, and even use to build a digital collectible portfolio within the platform, promoting the sports industry to enter the era of “fan economy + digital rights confirmation”.
4. Video NFTs
   can also be minted into NFTs. For example, in 2021, a 10-second video NFT sold for $6.6 million, with the artist’s signature and encrypted original file, reflecting the market’s recognition of digital video copyright and scarcity.
5. Music NFTs
   allow artists to release singles, albums, or concert clips in the form of NFTs, giving the original ownership of the work certification and resale profit sharing functions. For example, the well-known singer Huang Mingzhi once released the song “GO NFT”, combining music creation with on-chain copyright management.
6. Avatar NFTsIn
   the metaverse or game ecosystem, NFT-based virtual characters have unique identities and appearance characteristics. For example, the Lazy Lions project has released 10,000 lion characters with different appearances, which players can purchase on-chain and use in games or virtual social scenes.
7. Moving images (GIFs)
   include NFTs in the form of dynamic graphics, three-dimensional models, and interactive images, which are widely used in XR scene display and creative content circulation in virtual space.

The difference between NFT and cryptocurrency

Although NFT and homogeneous cryptocurrencies such as Bitcoin and Ether are all technical products of the blockchain, there are fundamental differences between the two in terms of essential attributes and usage methods, and the core difference is mainly “whether it is fungible”.

Cryptocurrencies, known as Fungible Tokens, such as Bitcoin (BTC) and Ethereum (ETH), each unit has the same value and is interchangeable. For example, two 50 yuan coins and one 100 yuan note are equivalent in purchasing power, and users can exchange them at will without affecting their function and circulation attributes on the chain, so this type of token is widely used in payment, clearing and on-chain value storage.

NFT is completely different from the above logic: each token of NFT has a unique code and metadata, representing the sole ownership of a specific digital asset, such as art, game equipment or virtual real estate, and it is generated based on blockchain technology and the information cannot be tampered with.

In short, cryptocurrencies emphasize “fungibility” and are more suitable for use as “money”; NFTs, on the other hand, emphasize “non-interchangeable” and are closer to “digital property certificates”. The two represent the core direction of blockchain finance and blockchain content assets, respectively, and constitute the twin pillars of the digital asset ecosystem.

The main difference between NFTs and cryptocurrencies is whether they are fungible (Source: https://blog.containerize.com/zh/nft-vs-crypto-difference-between-cryptocurrency-nft/ ）

NFT is?

The rapid rise of NFTs is not only supported by macro technological evolution, but also reflects the deep demands of digital creators in terms of asset rights confirmation. From the perspective of market dynamics, the rapid popularity of NFTs in emerging and developing economies is mainly driven by the rise of decentralized application ecosystems and the expansion of multi-chain support (such as Ethereum, Polygon, Solana, etc.), which has greatly expanded the application boundaries and accessibility of NFTs.

The nature of NFTs lies in their disruptive impact on traditional content property rights management systems. In the past centralized art distribution system, creators often relied on brokers or platforms for exposure and sales, which not only diluted profits, but also lacked control over the subsequent circulation of works, while through the NFT marketplace, creators can upload their works and set prices independently, which fundamentally simplifies the transaction process and reduces intermediary costs.

In addition, NFTs also provide a solution to the “right confirmation problem” that has long plagued the digital content field. In the past, it was difficult to define the original ownership and scarcity of digital art due to its strong reproducibility, but NFT used the traceability and tamper-proof characteristics of the blockchain to realize the unique mark and copyright proof of digital assets on the chain, which made the concept of “digital original” established, thus promoting the rise of the crypto art market.

A landmark event is that in March 2021, Christie’s, a well-known British auction house, sold Beeple’s NFT work “Everydays: The First 5000 Days” for $69 million, becoming the world’s first digital-only encrypted artwork to enter the mainstream art market. This not only established the financial position of NFT in the field of digital art, but also marked the turning point of NFT from technological experimentation to large-scale assetization.

Everydays: The First 5000 Days (Source: https://nypost.com/2021/03/11/the-first-nft-sold-by-christies-was-just-bought-for-69-3m/ ) NFTs suitable for investment?

At present, in the asset allocation system of high-net-worth individuals, NFTs are often regarded as “high-risk/high-return” alternative investment varieties. Some investors with risk tolerance and emerging asset preferences generally allocate no more than 5% of investable assets to NFTs, so NFTs are not suitable for all investors, and their suitability depends more on the overall wealth structure and personal risk tolerance of investors.

The core reason why NFTs attract young people is the wealth leap imagination brought about by their “unlimited appreciation potential”. In the traditional financial market, the opportunity to achieve more than 100 times returns in the short term is extremely scarce, and the high volatility and community-driven mechanism of the NFT market make it have the possibility of explosive growth. For example, the well-known NFT project Bored Ape Yacht Club (Bored Ape) was priced at only 0.75 ETH at the beginning of its launch, but the price soared to 150 ETH within a year, an increase of more than 200 times, forming a very attractive wealth effect and public opinion dissemination.

In addition, the non-fungible nature of NFTs determines that their liquidity is significantly lower than that of standard crypto assets during market downturns. Investors should be cautious about projects with rapidly rising price curves and avoid “FOMO”-driven decision-making, so as to capture growth opportunities in the new financial market while avoiding systemic risks.

Conclusion

The rise of NFTs is not only a technological innovation in the crypto industry, but also an important embodiment of the structural transformation of the digital content industry. In the context of the acceleration of the creator economy and the expansion of the Web3 ecosystem, NFT is gradually moving from a cultural symbol to an assetized product, becoming a key carrier for the confirmation and transaction of digital property rights in the new generation, and the concept and technical foundation behind it have the momentum for continuous evolution. For investors, understanding its logic and rational allocation will help capture more future value in the new financial paradigm. NFTs, not just collectibles, are more likely to be the starting point for the next value consensus.